ACCA Applied Knowledge · Business and Technology · Accounting and finance functions within business organisations
Zeta Ltd's finance team prepares a monthly report comparing actual results with budget for each branch, using estimates for some items to give managers quick information. The same team prepares annual financial statements for shareholders. Which statement about the two outputs is correct?
The monthly branch report can use estimates and any format that helps managers quickly, because it is internal. The annual statements for shareholders must follow applicable law and accounting standards. Using the same team and ledgers does not make management reports subject to those rules.
- ABoth must comply with accounting standards, because both are prepared by the same team from the same ledgers
- BThe monthly report may use estimates and a speed-focused format, whereas the annual statements must comply with applicable law and accounting standardsCorrect
- CThe monthly report must be audited, whereas the annual statements need not be audited if shareholders accept them
Explanation
Management reports are internal, so timeliness and usefulness can outweigh precision and no mandatory format applies. Published financial statements must meet legal and accounting standard requirements. Option A is wrong because the same team or ledgers do not impose standards on internal reports. Option C is wrong because management reports have no audit requirement.
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