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ACCA Strategic Professional · Strategic Business Reporting (International) · Provisions, contingencies and events after the reporting period

Sigma Ltd's finance director asks the financial controller to omit disclosure of a material contingent liability for an environmental claim, arguing that disclosure would harm the share price. The possibility of outflow is not remote. What should the accountant do first from an ethical and IAS 37 perspective?

The accountant should refuse to omit the disclosure, explain that IAS 37 requires it, and escalate internally if pressure continues. Share price concerns are not a valid exemption, and omitting a material, non-remote contingent liability would breach the fundamental principle of integrity.

  1. AOmit the disclosure to follow the director's instruction
  2. BDisclose it only in the directors' report, not in the notes
  3. CRefuse to omit the disclosure, explaining that IAS 37 requires it, and escalate internally if pressuredCorrect
  4. DRecognise a full provision to avoid any dispute

Explanation

IAS 37 requires disclosure of material contingent liabilities unless outflow is remote; harm to share price is not a permitted exemption except in extremely rare cases of seriously prejudicing the entity's position in a dispute, where the general nature is still disclosed. Omitting it would breach integrity and professional behaviour. A provision is wrong as outflow is not probable.

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