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ACCA Applied Skills · Financial Reporting · Regulatory framework

Zeta Co's financial statements state that they comply with IFRS Accounting Standards, except that management chose not to apply one recognition requirement of a standard because it considered the result would be too costly to apply. No law prohibits this. Which statement is correct under IAS 1?

Zeta cannot claim compliance with IFRS Accounting Standards. IAS 1 requires an explicit and unreserved statement of compliance, and the departure is justified only in extremely rare cases where compliance would be misleading. Avoiding cost is not a valid reason, and disclosing the departure does not cure the problem.

  1. AZeta may state compliance with IFRS Accounting Standards provided the departure is disclosed in the notes
  2. BZeta may not state compliance with IFRS Accounting Standards because compliance must be explicit and unreserved, and cost is not a valid reason for departureCorrect
  3. CZeta may state compliance if the auditor agrees that the departure is immaterial in aggregate
  4. DZeta may state compliance with IFRS Accounting Standards with the exception noted in the statement of compliance

Explanation

IAS 1 requires an explicit and unreserved statement of compliance, made only if all requirements are met. The override is allowed only in extremely rare cases where compliance would be so misleading that it conflicts with the Conceptual Framework's objective, and cost or inconvenience is not such a case. Disclosing the departure does not allow a compliance claim.

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