Question 1

CloudSync Inc, a tech startup, is developing a new proprietary algorithm. The directors want to capitalize $2 million of research costs to make the Statement of Financial Position look stronger. Which fundamental qualitative characteristic would be violated if they proceed?

Accepted Answer

Recall the two fundamental qualitative characteristics: Relevance and Faithful Representation. Deliberate manipulation violates neutrality, a component of faithful representation.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Selecting comparability because it makes the company look different from peers, but the root issue is the lack of faithful representation.

CloudSync Inc, a tech startup, is developing a new proprietary algorithm. The directors want to capitalize $2 million of research costs to make the Statement of Financial Position look stronger. Which fundamental qualitative characteristic would be violated if they proceed?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 4

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