Skip to content

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

Orion plc's finance director asks the financial controller to classify a $3m development cost as an asset even though the criteria in IAS 38 are not met, so that a loan covenant on profit is not breached. Which response best reflects the ethical position of a professional accountant?

The controller should refuse to capitalise the cost, explain that IAS 38 criteria are unmet, and escalate within the entity if pressure continues. Capitalising to avoid a covenant breach would be misleading, and pressure from a senior colleague threatens integrity and objectivity.

  1. AComply, because directors are responsible for the financial statements
  2. BComply but disclose the judgement in a note
  3. CDecline to capitalise, explain the IAS 38 requirements, and escalate internally if pressure continuesCorrect
  4. DCapitalise half of the amount as a compromise

Explanation

Capitalising costs that fail IAS 38 criteria would be a misstatement, and pressure from a senior colleague is an intimidation threat to integrity and objectivity. The accountant should not be associated with misleading information, should explain the requirements and escalate if needed. Disclosure or compromise does not cure a non-compliant treatment.

Did you get it right without looking?

One question tells you little. A timed set on The applications, strengths and weaknesses of the accounting framework shows your real accuracy, how long you take and where you lose marks.

Practise The applications, strengths and weaknesses of the accounting frameworkFree diagnostic mock

More The applications, strengths and weaknesses of the accounting framework questions