Skip to content

ACCA Strategic Professional · Strategic Business Reporting (International) · Other reporting issues

Orla Group's draft financial statements show profit before tax of $10m. An unadjusted misstatement of $0.2m (2%) relates to a payment to a director that breaches local law and could lead to a loss of the group's operating licence. Which conclusion is most consistent with IFRS Practice Statement 2?

The item may well be material. Practice Statement 2 says materiality is not only quantitative, and qualitative factors such as a legal breach, a director's involvement and the risk of losing the operating licence can make a small amount material to users' decisions.

  1. AThe item may be material because qualitative factors, such as legal breach and potential consequences, can make a small amount materialCorrect
  2. BThe item is immaterial because it is below 5% of profit before tax
  3. CThe item is immaterial because materiality is assessed only on quantitative grounds
  4. DThe item is material only if the auditor has qualified the prior year opinion

Explanation

Materiality has quantitative and qualitative aspects. A small amount can influence users' decisions if it involves a legal breach, related party dealings or threatens the entity's ability to operate. Relying on a percentage alone is wrong.

Did you get it right without looking?

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

Practise Other reporting issuesFree diagnostic mock

More Other reporting issues questions