Sbr (int/UK) Strategic Business Reporting

 

9 

Depending on how the land will be used, PPE or investment properties should be 

recognised at the $5 million purchase cost. 

(1 mark) 

 

(Part (b): 5 marks max) 

(c) Ethics 

Liminal’s financial statements will be used by a range of user groups, such as the 

bank, to inform their economic decisions. It is important that trust in financial 

statements is not broken. 

 (1 mark) 

The contract error overstates revenue and, therefore, profits. It will improve 

perception of Liminal’s performance. 

(1 mark) 

There is an incentive to manipulate Liminal’s financial statements in order to secure 

the bank loan. The contract error, whether intentional or not, may mislead the bank 

when making a decision about the loan application. 

(1 mark) 

The error with regards to the purchase of Sand overstates profit, which again may 

mislead the bank about economic performance in the period. 

(1 mark) 

If the errors in the financial statements were unintentional then this may suggest 

that the director lacks professional competence. 

(1 mark) 

If the errors in the financial statements were intentional then this contravenes the 

ethical principles of integrity, objectivity and professional behaviour. 

(1 mark) 

The financial controller has a self-interest threat to objectivity because concerns 

about losing her job may make her less likely to confront the finance director with 

these errors. 

(1 mark) 

Moreover, there is some suggestion that the finance director is an intimidating 

character and, once again, this may make the financial controller less likely to 

confront him due to the intimidation threat. 

(1 mark) 

Nonetheless it is vital that accountants do not prioritise their own self-interests 

above those of the financial statement users, otherwise public trust in the 

accountancy profession will be eroded.