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

Hartwell plc's finance director instructs Omar, a group reporting accountant, to adjust the consolidation spreadsheet by excluding a loss-making subsidiary, Vexa, that Hartwell controls, claiming the exclusion is 'temporary until disposal is agreed'. No sale has been agreed and IFRS 5 criteria are not met. Omar has raised the issue with the audit committee, which has sided with the finance director. Which course of action is most appropriate for Omar?

Omar should keep consolidating Vexa under IFRS 10, record his objections, take legal or professional advice, and consider further steps such as external disclosure or resignation. Audit committee approval cannot override IFRS, and misclassifying Vexa as held for sale or an associate would also be wrong.

  1. AExclude Vexa as instructed since the audit committee has approved it
  2. BConsolidate Vexa under IFRS 10 in his own work, record his objections, seek legal or professional body advice, and consider further steps including disclosure or resignationCorrect
  3. CConsolidate Vexa as a held-for-sale disposal group at fair value to compromise
  4. DTreat Vexa as an associate to reduce the dispute

Explanation

IFRS 10 requires consolidation of all controlled subsidiaries; exclusion for expected disposal is not allowed unless IFRS 5 criteria are met. Approval by the audit committee does not change the standard. Omar must not be associated with misleading information and should document, seek advice and consider further steps. Held-for-sale classification or associate treatment would also misapply the standards.

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