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ACCA Strategic Professional · Strategic Business Reporting (International) · The applications, strengths and weaknesses of the accounting framework

Lumen plc must choose its accounting policy for a new type of transaction on which no IFRS Accounting Standard specifically applies. Which approach is required by IAS 8 for developing the policy?

Management uses judgement, looking first to IFRS Standards on similar and related issues, then to the Conceptual Framework definitions, recognition criteria and measurement concepts. It may also consider recent pronouncements of other standard-setters, provided these do not conflict with the hierarchy.

  1. AUse management's judgement, considering first IFRS Standards dealing with similar issues, then the Conceptual Framework definitions and recognition criteria, and may consider other standard-setters' recent pronouncementsCorrect
  2. BAdopt the treatment of the local tax authority because it is objectively verifiable
  3. CApply the Conceptual Framework only if it conflicts with no national company law
  4. DChoose whichever treatment gives the highest reported profit, provided it is disclosed

Explanation

IAS 8 requires management to use judgement to develop a policy giving relevant and reliable information. It must refer first to Standards dealing with similar issues, then to the Conceptual Framework definitions and recognition criteria, and may consider other standard-setters' pronouncements. Tax rules and profit maximisation are not valid bases.

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