ACCA Strategic Professional · Strategic Business Reporting (International) · Income taxes
Fenwick Co's finance director asks the group accountant to assume that the tax authority will not examine a doubtful treatment, so that no additional tax is reflected in the financial statements. Which statement is correct under IFRIC 23?
The request is not acceptable. IFRIC 23 requires the entity to assume the tax authority will examine the treatment and has full knowledge of all relevant information, so detection risk cannot be used to avoid reflecting the uncertainty. Ignoring this would also raise integrity concerns for the accountant.
- AThis is acceptable if the authority has not yet opened an enquiry into the entity
- BThis is acceptable if the amount is below the materiality level of the group
- CThis is not acceptable, as the entity must assume the authority will examine the treatment and have full knowledge of all relevant informationCorrect
- DThis is acceptable if the entity discloses the uncertainty in the notes instead
Explanation
IFRIC 23 states that an entity shall assume a tax authority with the right to examine amounts will examine them and have full knowledge of all related information. Detection risk is not considered. Asking for the assumption of no examination is contrary to the standard and raises an ethical concern about integrity in reporting. Disclosure does not replace recognition.
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