ACCA Strategic Professional · Strategic Business Reporting (International) · Revenue
Orla Ltd's finance director asks the group accountant to allocate the whole discount on a bundled contract to a service delivered over three years, so that more revenue is recognised immediately on the goods delivered now and the year-end profit target is met. No observable evidence links the discount to the service. Which response is most appropriate under IFRS 15 and professional ethics?
The accountant should refuse and allocate the discount proportionately using relative standalone selling prices, escalating if pressured. IFRS 15 does not allow allocation chosen to hit profit targets without observable evidence, and doing so would breach integrity and objectivity. Disclosure cannot make a non-compliant treatment acceptable.
- AComply, as management may choose any allocation method that is applied consistently
- BComply, provided the allocation is disclosed in the notes
- CRefuse, allocate the discount proportionately by relative standalone selling prices, and escalate if pressure persistsCorrect
- DAllocate the discount to the goods instead to offset the director's request
Explanation
IFRS 15 requires proportionate allocation unless observable evidence supports allocating to specific obligations. Choosing an allocation to meet a profit target would be biased and breach the integrity and objectivity principles. Disclosure does not cure a non-compliant treatment, and shifting the discount to goods is equally unsupported.
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