ACCA Strategic Professional · Strategic Business Reporting (International) · Professional and ethical behaviour in corporate reporting

Dhruv is the finance director of Elan Co and holds a bonus plan based on reported profit. The audit committee asks him to assess whether his own role in selecting a revenue recognition estimate creates a threat. He has a significant bonus linked to the profit the estimate increases. Under the ACCA Code's approach, which response is most appropriate?

Dhruv should identify a self-interest threat, evaluate how significant it is, and apply safeguards such as independent review of the estimate, or step away if the threat cannot be reduced to an acceptable level. Disclosure alone does not eliminate the threat, and ignoring it is not permitted.

1. AIdentify the self-interest threat, evaluate its significance, and apply safeguards such as review of the estimate by an independent party, or decline to be involved if the threat cannot be reduced to an acceptable levelCorrect
2. BIgnore the threat, because bonus plans are standard commercial practice and cannot affect objectivity
3. CTreat it as an advocacy threat and resign immediately without evaluating safeguards
4. DDisclose the bonus in the notes and proceed without further action since disclosure eliminates all threats