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

The finance director of Kappa plc asks the financial controller not to disclose a possible $5 million environmental claim, which is a contingent liability that is not remote, because disclosure might upset lenders ahead of a refinancing. Which response is most consistent with IFRS and ACCA ethical requirements?

The controller should refuse to omit the disclosure and escalate if pressure continues. IAS 37 requires disclosure of a contingent liability unless the outflow is remote, and omitting it to influence lenders would breach the fundamental principles of integrity and professional behaviour.

  1. AComply, because contingent liabilities are optional disclosures
  2. BComply, but only if the lenders are told verbally
  3. CRefuse to omit the disclosure, as it breaches IAS 37 and the fundamental principles of integrity and professional behaviour, and escalate if pressure continuesCorrect
  4. DRecognise a full $5 million provision to avoid any disclosure debate

Explanation

IAS 37 requires disclosure of contingent liabilities unless the outflow is remote, so omission would be misleading. The accountant must not be associated with misleading information and should escalate internally if pressured. Recognising a provision is not justified when the outflow is only possible.

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