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ACCA Strategic Professional · Strategic Business Reporting (International) · Discussion of issues in financial reporting

Zeta plc has a lease-like arrangement whose accounting is not specifically covered by any IFRS Accounting Standard. The finance director asks which sources management must consider, in order, when developing an accounting policy under IAS 8. Which sequence is correct?

Under IAS 8, management first looks to IFRS requirements dealing with similar and related issues, then to the Conceptual Framework definitions and recognition criteria, and may also consider other standard-setters' recent pronouncements. Competitor practice, tax treatment or profit preference are not valid sources for developing a policy.

  1. AApply IFRS requirements dealing with similar issues, then the Conceptual Framework definitions and recognition criteria, then (optionally) other standard-setters' pronouncementsCorrect
  2. BCopy the treatment used by the largest competitor, then refer to the Conceptual Framework
  3. CUse the tax treatment first, then apply IFRS requirements dealing with similar issues
  4. DApply the most favourable treatment to profit, then consult other standard-setters

Explanation

IAS 8 requires management to use judgement to develop a policy that is relevant and reliable. It first considers IFRS requirements on similar and related issues, then the Conceptual Framework definitions and recognition criteria, and may consider other standard-setters' recent pronouncements. Competitor practice and tax rules are not part of the hierarchy, and profit preference is inconsistent with reliability.

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