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Shastra Ltd. enters a property lease on 1 April 20X5 but does not recognise any lease asset / liability because, the MD argues, there is no invoice transferring ownership and gearing would worsen the imminent loan application. The new CA-financial-controller is told his future at Shastra is at stake. Categorise the threats and the required response.
AAdvocacy threat only; recognise the lease but agree with management's preferred disclosure
BSelf-interest and familiarity threats; record entries per management's instruction and disclose later
CIntimidation threat to objectivity / integrity plus advocacy threat to professional competence; apply Ind AS 116, recognise ROU asset and lease liability, and escalate within internal governance
DFamiliarity and self-review threats; refuse to sign the financial statements but otherwise stay silent
Answer & Solution
Correct answer: C. Intimidation threat to objectivity / integrity plus advocacy threat to professional competence; apply Ind AS 116, recognise ROU asset and lease liability, and escalate within internal governance
The job-loss warning is an intimidation threat (objectivity/integrity). The loan application pressure to suppress the obligation creates an advocacy threat to professional competence. Ind AS 116 still requires a ROU asset and lease liability at PV of future payments, irrespective of whether an 'invoice' exists — ownership transfer is not the criterion. The controller must escalate internally and may be open to Clause 1 of Part II of the Second Schedule if he bends.
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