The audit of the financial reports of Matilda Ltd had been completed except for the outcome of a material contingent liability that is still subject to the outcome of a court decision.The case is still ongoing but it is expected that a decision will be made after three months.The deadline for submitting the financial reports is next month.Which action is consistent with the notion of 'timeliness' in the preparation of financial reports?
A) Matilda Ltd should wait for the court decision to be completed before releasing the financial reports as the amount of the liability is material.
B) Matilda Ltd should release the financial report on or before the deadline but exclude the contingent liability from the report as the outcome is still uncertain.
C) Matilda Ltd should release the financial report on or before the deadline but disclose the contingent liability in the notes to the accounts.
D) Matilda Ltd must wait for the court decision to be completed before releasing the financial reports as it is expected to occur in the near future anyway (i.e. three months).

Question

Quizplus · Accepted Answer

The principle of timeliness suggests that financial reports should be prepared, presented, and made available to users as soon as possible after the reporting period. Matilda Ltd cannot wait for the court decision to be completed before submitting the financial reports, as this would not be timely. Similarly, excluding the contingent liability from the financial report would not be appropriate, as this would result in incomplete and potentially misleading financial reports. The best course of action is to release the financial report on or before the deadline and disclose the contingent liability in the notes to the accounts. This will provide users with relevant and reliable information and will also comply with the principle of timeliness.

The Audit of the Financial Reports of Matilda Ltd Had