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Pervasive

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › Pervasive

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by Ken Garrett.
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  • October 17, 2016 at 3:44 am #343742
    Anuja Nair
    Member
    • Topics: 365
    • Replies: 353
    • ☆☆☆☆

    Hi sir, for the following questions below, how do we differentiate whether the matter is pervasive ?

    Question)
    Company A
    Profit before tax $ 10 000
    Total assets $2300 000
    Overstatement of receivables due to an irrecoverable debt not being written off $15 000

    Company B
    Profit before tax $ 245 000
    Total assets $6500 000
    Overstatement of inventory due to failure to value at lower of cost & NRV $85 000

    In the answer key, it states that for company A the matter is MATERIAL AND PERVASIVE. But for company B the matter is MATERIAL BUT NOT PERVASIVE.

    I understand why it’s material. But I don’t understand why for company A its pervasive but for company B, its not pervasive. Could you explain?

    October 17, 2016 at 11:07 am #344158
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10594
    • ☆☆☆☆☆

    The argument would be that changing a profit of 10 into a loss of 5 is a very serious misstatement – so serious that it is pervasive.

    I could argue the other way: the misstatement is 15, the assets are 2,300 so whether there is a profit of 10 or a loss of 5 isn’t really important enough to be pervasive.

    There is no definite rule about when material turns into material and pervasive.

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