ACCA Applied Knowledge · Business and Technology · Financial information provided by business
Zenith Ltd's finance director is reviewing two reports: (1) the published annual financial statements, and (2) a monthly report to the board comparing actual costs with budget by division. Which statement is most accurate?
The published financial statements are legally required and prepared in a standard format under accounting standards, whereas the monthly divisional report is discretionary. Management can design it freely, include estimates and non-monetary measures, and choose its frequency, even though both draw on the same underlying transactions.
- ABoth reports are subject to the same legal requirements because they use the same underlying transactions
- BReport 1 is legally required and uses a standard format, whereas report 2 is discretionary and may include non-monetary measures and estimatesCorrect
- CReport 2 is legally required because the board is responsible for the company, whereas report 1 is optional
Explanation
Published financial statements are a legal requirement and must follow accounting standards. A divisional budget comparison is a management tool, set by the company, and may include non-monetary data and estimates. Using the same transaction data does not make the legal requirements identical.
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