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ACCA Applied Knowledge · Financial Accounting · Qualitative characteristics of useful financial information

Which of the following situations is the best example of the cost constraint leading to a decision not to provide certain information?

Not tracking a $40 stationery item as a non-current asset is the cost constraint at work. The effort of capitalising and depreciating it exceeds any benefit to users, whereas hiding a material liability or delaying publication is not justified by cost.

  1. AA company omits a material contingent liability because disclosure may upset shareholders
  2. BA company values an asset at a lower amount because the higher amount seems too optimistic
  3. CA company delays publishing its financial statements because the auditor is on holiday
  4. DA company does not separately track a $40 stationery item as a non-current asset because the effort exceeds any benefit to usersCorrect

Explanation

Expensing a trivial item rather than capitalising and depreciating it avoids processing costs that outweigh any benefit to users, as the information is immaterial. Omitting a material liability is not justified by cost, while undervaluing an asset is a bias issue and the delay concerns timeliness.

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