ACCA Strategic Business Reporting (SBR) Practice Exam

When can changes in accounting policies be applied?

1. At the discretion of the management

2. When it results in more reliable and relevant information or is required by IFRS

3. Only during periodic reviews

4. When there are no existing regulations

The correct answer is: When it results in more reliable and relevant information or is required by IFRS

Changes in accounting policies can be applied when they result in more reliable and relevant information or when such changes are required by International Financial Reporting Standards (IFRS). This principle ensures that financial statements provide a faithful representation of the entity's financial position and performance. The requirement for changes to enhance the reliability and relevance of financial information aligns with the overarching goal of financial reporting—to provide information that is useful for decision-making by a wide range of users. Moreover, IFRS sets out specific guidelines on when and how an entity can change its accounting policies. For instance, if a change leads to a more appropriate presentation of events and transactions in the financial statements, it is justified. Additionally, certain changes may be mandated by new or revised IFRS, which must be adhered to in order to maintain compliance. In contrast, changes made solely at management’s discretion or during periodic reviews would not necessarily align with the rigorous standards set out by IFRS and could lead to inconsistencies and issues regarding the comparability of financial statements. Likewise, the notion of changing accounting policies when there are no existing regulations does not align with the principle of maintaining even higher standards of clarity and reliability as set by IFRS and would not be a sufficient basis for change.