ACCA Strategic Business Reporting (SBR) Practice Exam

How does IAS 8 influence the selection of accounting policies?

1. By permitting arbitrary choice of policies

2. By requiring compliance with governmental regulations

3. By requiring the relevant IFRS to be applied consistently

4. By advocating for innovative accounting practices

The correct answer is: By requiring the relevant IFRS to be applied consistently

The correct answer emphasizes that IAS 8 provides a framework for the selection and application of accounting policies by mandating consistency in applying relevant International Financial Reporting Standards (IFRS). This consistency is crucial in ensuring comparability of financial statements over time, which enhances their reliability and credibility to users such as investors and regulators. IAS 8 establishes that entities should use consistent accounting policies unless a change is justified by any new IFRS or a requirement of another standard or interpretation. In this context, IAS 8 helps entities avoid arbitrary selection of policies or deviation from established practices without strong justification. It does not endorse innovative accounting practices or arbitrary changes; rather, it reinforces adherence to recognized standards to maintain the quality and integrity of financial reporting. Compliance with governmental regulations may be a separate consideration but is not the primary focus of IAS 8 regarding accounting policy selection.