Skip to content

ACCA Strategic Professional · Strategic Business Reporting (International) · Discussion of issues in financial reporting

Karo Ltd holds a patent licence. Management says that because measurement uncertainty is high, no information about the licence should be given to users. Under the Conceptual Framework, which approach is most consistent with its guidance on recognition and measurement uncertainty?

Karo should assess whether recognising the licence gives relevant information and a faithful representation. High measurement uncertainty does not automatically bar recognition, as a clearly described estimate can be faithful. If recognition is not appropriate, the entity should consider whether disclosure about the item is needed.

  1. ADo not recognise the item and give no disclosure, because high uncertainty always makes information unfaithful
  2. BRecognise the item only if its fair value is known with certainty
  3. CRecognise the item at cost in all cases, since cost removes measurement uncertainty
  4. DConsider whether recognition provides relevant and faithfully represented information; if not recognised, consider disclosure of the itemCorrect

Explanation

The Framework says recognition depends on whether it provides relevant information and a faithful representation. High measurement uncertainty does not automatically prevent recognition, since a reasonable estimate can be faithful if it is clearly described. If an item is not recognised, disclosure of it may still be needed.

Did you get it right without looking?

One question tells you little. A timed set on Discussion of issues in financial reporting shows your real accuracy, how long you take and where you lose marks.

Practise Discussion of issues in financial reportingFree diagnostic mock

More Discussion of issues in financial reporting questions