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Accounting Policies, Changes in Accounting Estimates and Errors
Accounting Policies, Changes in Accounting Estimates and Errors
1. Definitions
2. Objective
3. Accounting policies
4. Changes in accounting estimates
5. Errors
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What is accounting?
Accounting is the system of:
- Recording and summarizing business and financial transactions;
and
- Analyzing, verifying and reporting the results.
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What is the event in IAS 8?
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Accounting policies
o Measurement
o Recognition
o Presentation and Disclosure
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Accounting estimates
o Fraud
o Omission
o Misstatement
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Example 1
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Example 1
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Example 1
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Example 1
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Objective of IAS 8
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Contents of IAS 8
• Objective
• Concepts:
– Faithful representation
– Comparability
• Principles:
– Change in A/c policy: Retrospective
– Change in A/c estimate: Prospective
– Prior period error: Retrospective
• Rules:
– Impracticable
– Disclosures
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Change in accounting Policies
Accounting policies
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Selection
Determine A/C policy with
reference to the IFRS
Other IFRS
Selection
A/C
Framework
policy
Management
uses Other standards
judgement
A/C literature
Other industry
practice
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Consistency
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Change
Note that these items are not considered changes in accounting policies:
• The application of an accounting policy for transactions, other events, or
conditions that differs in substance from those previously occurring.
• The application of a new accounting policy for transactions, other events, or
conditions, that did not occur previously or were immaterial.
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Retrospective application
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Retrospective application
Retrospective application
Comparatives Current
Adjust
opening balance
of each affected Adjust
component of comparative amounts
equity for the disclosed for each
earliest prior prior period presented
period presented
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Example 2
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Change in accounting Policies
Accounting policies
Specific principles, bases,
conventions, rules and
practices applied in preparing
financial statements Detailed disclosures
required depending on
whether required change
or voluntary change
Change in Accounting policies
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Change in accounting estimates
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Change in accounting estimates
Change in Correction
A/C estimate an error
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Prospective application
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Prospective application
Prospective application
Comparatives Current
Adjust
prospectively
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Example 3
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Example 3
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Example 4
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Disclosure
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Change in accounting estimates
Accounting estimates
Judgments made by
management e.g. bad debts,
inventory obsolescence, Disclose nature and
warranty obligations, amount of change in
useful life of PPE accounting estimate that
has had an effect on
current or future periods
Includes change of
Change in Accounting estimates
depreciation method
Changes based on new
information or more experience Impact
Does not relate to prior periods Prospective application
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Prior period Errors
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Prior period Errors
Comparatives Current
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Example 5
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THE END
THANK YOU!
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