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ACCA Strategic Professional · Strategic Business Reporting (International) · Analysis and interpretation of financial and non-financial information and measurement of performance

The finance director of Valdis Co is under pressure from the CEO, whose bonus depends on 'Adjusted profit', to remove a $12m recurring warranty cost from the APM, labelling it 'exceptional'. The costs have arisen every year. Which action best reflects ethical behaviour under the IESBA Code principles of integrity and objectivity?

The finance director should refuse to exclude the recurring warranty cost and escalate to those charged with governance if pressure persists. Treating a recurring cost as exceptional to boost a bonus-linked APM would be misleading and breach the fundamental principles of integrity and objectivity.

  1. AComply with the CEO, since the APM is outside IFRS and unaudited
  2. BRefuse to exclude the recurring cost from the APM and escalate to those charged with governance if pressure continuesCorrect
  3. CExclude the cost but disclose the CEO's bonus terms in a footnote
  4. DResign immediately without raising any concerns

Explanation

Recurring warranty costs are part of normal operations, so labelling them exceptional would be misleading and breach integrity and objectivity. The accountant should resist the pressure and use internal escalation, such as the audit committee. Disclosure of bonus terms does not cure the misleading presentation, and resigning without escalation is premature.

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