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MFRS 108

Malaysian Financial Reporting Standard 108

Accounting Policies, Changes in Accounting Estimates and Errors
This version includes amendments resulting from MFRSs with effective dates no later than 1 January 2012.

Amendments with an effective date later than 1 January 2012 MFRS 108 has been amended by:  MFRS 9 Financial Instruments* (IFRS 9 Financial Instruments issued by IASB in November 2009)  MFRS 9 Financial Instruments* (IFRS 9 Financial Instruments issued by IASB in October 2010)  MFRS 13 Fair Value Measurement* Those amendments have an effective date after 1 January 2012 and are therefore not included in this edition.

*

effective date 1 January 2013

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MFRS 108

CONTENTS paragraphs Preface INTRODUCTION IN1–IN18

MALAYSIAN FINANCIAL REPORTING STANDARD 108 ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS
OBJECTIVE SCOPE DEFINITIONS ACCOUNTING POLICIES Selection and application of accounting policies Consistency of accounting policies Changes in accounting policies Applying changes in accounting policies Retrospective application Limitations on retrospective application Disclosure CHANGES IN ACCOUNTING ESTIMATES Disclosure ERRORS Limitations on retrospective restatement Disclosure of prior period errors IMPRACTICABILITY IN RESPECT OF RETROSPECTIVE APPLICATION AND RETROSPECTIVE RESTATEMENT EFFECTIVE DATE WITHDRAWAL OF OTHER PRONOUNCEMENTS 1–2 3–4 5–6 7–31 7–12 13 14–31 19–27 22 23–27 28–31 32–40 39–40 41–49 43–48 49 50–53 54 55–56

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©

IFRS Foundation

the Foreword to Financial Reporting Standards and the Conceptual Framework for Financial Reporting. All the paragraphs have equal authority. © IFRS Foundation 461 . Changes in Accounting Estimates and Errors (MFRS 108) is set out in paragraphs 1–56.MFRS 108 Malaysian Financial Reporting Standard 108 Accounting Policies. MFRS 108 should be read in the context of its objective and the Basis for Conclusions.

Changes in Accounting Estimates and Errors when the FRS did not include specific transitional provisions. The IASB defines IFRSs as comprising: (a) International Financial Reporting Standards. Application of MFRS 1 is necessary as otherwise such financial statements will not be able to assert compliance with IFRS. the Malaysian equivalent of IFRS 1 First-time Adoption of International Financial Reporting Standards. the requirements of MFRS 1 First-time Adoption of Malaysian Financial Reporting Standards must be observed. except when it (1) prohibits retrospective application in some aspects or (2) allows the first-time adopter to use one or more of the exemptions or exceptions contained therein. in preparing its first MFRS financial statements* for a financial period beginning on or after 1 January 2012. the first-time adopter shall refer to the provisions contained in MFRS 1 on matters relating to transition and effective dates instead of the transitional provision and effective date contained in the respective MFRSs.MFRS 108 Preface The Malaysian Accounting Standards Board (MASB) is implementing its policy of convergence through adopting International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB) for application for annual periods beginning on or after 1 January 2012. In this case. First-time application of MFRSs equivalent to IFRSs Application of this Standard will begin in the first-time adopter’s * first annual reporting period beginning on or after 1 January 2012 in the context of adopting MFRSs equivalent to IFRSs. 462 . to be restated as if the requirements of MFRSs effective for annual period beginning on or after 1 January 2012 have always been applied. requires prior period information. and (d) SIC Interpretations. This differs from previous requirements where an entity accounted for changes of accounting policies in accordance with the specific transitional provisions contained in the respective Financial Reporting Standards (FRSs) or in accordance with FRS 108 Accounting Policies. This means that. Malaysian Financial Reporting Standards (MFRSs) equivalent to IFRSs that apply to any reporting period beginning on or after 1 January 2012 are: (a) Malaysian Financial Reporting Standards. (c) IFRIC Interpretations. and (b) IC Interpretations. (b) International Accounting Standards. MFRS 1. * Appendix A of MFRS 1 defines first-time adopter and first MFRS financial statements. presented as comparative information.

including the effective and issuance dates. Changes in Accounting Estimates and Errors as issued and amended by the IASB. Comparison and compliance with IAS 8 MFRS 108 is equivalent to IAS 8 Accounting Policies. Entities that comply with MFRS 108 will simultaneously be in compliance with IAS 8.MFRS 108 In this regard the effective and issuance dates contained in this Standard are those of the IASB’s and are inapplicable in the new MFRS framework since MFRS 1 requirements will be applied on 1 January 2012. 463 .

Selection of accounting policies IN6 The requirements for the selection and application of accounting policies in IAS 1 Presentation of Financial Statements (as issued in 1997) have been transferred to the Standard. to deal with some convergence issues and to make other improvements. (d) to define material omissions or misstatements. For IAS 8. The objectives of the project were to reduce or eliminate alternatives. Changes from previous requirements IN5 The main changes from the previous version of IAS 8 are described below. The IASB did not reconsider the other requirements of IAS 8. IN3 (b) to eliminate the concept of a fundamental error. Changes in Accounting Estimates and Errors (IAS 8) replaces IAS 8 Net Profit or Loss for the Period. Earlier application is encouraged. and (e) IN4 to incorporate the consensus in SIC-2 and in SIC-18. IASB’s reasons for revising IAS 8 IN2 The International Accounting Standards Board developed this revised IAS 8 as part of its project on Improvements to International Accounting Standards. the IASB’s main objectives were: (a) to remove the allowed alternative to retrospective application of voluntary changes in accounting policies and retrospective restatement to correct prior period errors. The project was undertaken in the light of queries and criticisms raised in relation to the Standards by securities regulators.MFRS 108 Introduction IN1 International Accounting Standard 8 Accounting Policies. and describe how to apply the concept of materiality when applying accounting policies and correcting errors. professional accountants and other interested parties. Fundamental Errors and Changes in Accounting Policies (revised in 1993) and should be applied for annual periods beginning on or after 1 January 2005. (c) to articulate the hierarchy of guidance to which management refers. The Standard also replaces the following Interpretations:   SIC-2 Consistency—Capitalisation of Borrowing Costs SIC-18 Consistency—Alternative Methods. whose applicability it considers when selecting accounting policies in the absence of Standards and Interpretations that specifically apply. The Standard updates the previous hierarchy of guidance to which management refers and whose applicability it considers 464 © IFRS Foundation . redundancies and conflicts within the Standards.

(b) financial statements do not comply with IFRSs if they contain material errors. prospectively from the earliest date practicable. © IFRS Foundation 465 . of: (a) applying a new accounting policy to all prior periods. Voluntary changes in accounting policies and corrections of prior period errors IN8 The Standard requires retrospective application of voluntary changes in accounting policies and retrospective restatement to correct prior period errors. and (b) to present unchanged comparative information from financial statements of prior periods. at the beginning of the current period. the entity changes the comparative information as if the new accounting policy had been applied. IN9 As a result of the removal of the allowed alternative. or the error had been corrected. or IN11 (b) an error on all prior periods. It stipulates that: (a) the accounting policies in IFRSs need not be applied when the effect of applying them is immaterial. Impracticability IN10 The Standard retains the ‘impracticability’ criterion for exemption from changing comparative information when changes in accounting policies are applied retrospectively and prior period errors are corrected. It removes the allowed alternative in the previous version of IAS 8: (a) to include in profit or loss for the current period the adjustment resulting from changing an accounting policy or the amount of a correction of a prior period error. Materiality IN7 The Standard defines material omissions or misstatements. (c) material prior period errors are to be corrected retrospectively in the first set of financial statements authorised for issue after their discovery. This complements the statement in IAS 1 that disclosures required by IFRSs need not be made if the information is immaterial. The Standard now includes a definition of ‘impracticable’ and guidance on its interpretation. comparative information for prior periods is presented as if new accounting policies had always been applied and prior period errors had never occurred.MFRS 108 when selecting accounting policies in the absence of International Financial Reporting Standards (IFRSs) that specifically apply. The Standard also states that when it is impracticable to determine the cumulative effect.

The Standard includes exceptions from including the effects of changes in accounting estimates prospectively in profit or loss. Disclosures IN13 The Standard now requires. The Standard defines prior period errors. The Standard incorporates the consensus in SIC-18. and (b) if an IFRS requires or permits such categorisation. or relates to an item of equity. 466 © IFRS Foundation . if IAS 33 Earnings per Share applies to the entity. unless an IFRS specifically requires or permits categorisation of items for which different policies may be appropriate. for basic and diluted earnings per share. liability or equity item in the period of the change. It states that to the extent that a change in an accounting estimate gives rise to changes in assets or liabilities. and requires that when an entity has chosen a policy of capitalising borrowing costs. IN14 Other changes IN15 IN16 The presentation requirements for profit or loss for the period have been transferred to IAS 1. It requires those disclosures to be made for each financial statement line item affected and. an appropriate accounting policy is selected and applied consistently to each category. IN17 IN18 The Standard includes a definition of a change in accounting estimate. The consensus in SIC-18 incorporated the consensus in SIC-2. disclosure of an impending change in accounting policy when an entity has yet to implement a new IFRS that has been issued but not yet come into effect. rather than encourages. it should apply this policy to all qualifying assets.MFRS 108 Fundamental errors IN12 The Standard eliminates the concept of a fundamental error and thus the distinction between fundamental errors and other material errors. it is recognised by adjusting the carrying amount of the related asset. namely that: (a) an entity selects and applies its accounting policies consistently for similar transactions. In addition. other events and conditions. The Standard requires more detailed disclosure of the amounts of adjustments resulting from changing accounting policies or correcting prior period errors. it requires disclosure of known or reasonably estimable information relevant to assessing the possible impact that application of the new IFRS will have on the entity’s financial statements in the period of initial application.

together with the accounting treatment and disclosure of changes in accounting policies. or the amount of the periodic consumption of an asset. accordingly. that results from the assessment of the present status of. Changes in Accounting Estimates and Errors Objective 1 The objective of this Standard is to prescribe the criteria for selecting and changing accounting policies. Changes in accounting estimates result from new information or new developments and. conventions. changes in accounting estimates and corrections of errors. are set out in MFRS 101 Presentation of Financial Statements. Disclosure requirements for accounting policies. bases.MFRS 108 Malaysian Financial Reporting Standard 108 Accounting Policies. and accounting for changes in accounting policies. except those for changes in accounting policies. (b) International Accounting Standards. changes in accounting estimates and corrections of prior period errors. The Standard is intended to enhance the relevance and reliability of an entity’s financial statements. They comprise: (a) International Financial Reporting Standards. and expected future benefits and obligations associated with. A change in accounting estimate is an adjustment of the carrying amount of an asset or a liability. 4 Definitions 5 The following terms are used in this Standard with the meanings specified: Accounting policies are the specific principles. assets and liabilities. are not corrections of errors. and the comparability of those financial statements over time and with the financial statements of other entities. (c) IFRIC Interpretations. The tax effects of corrections of prior period errors and of retrospective adjustments made to apply changes in accounting policies are accounted for and disclosed in accordance with MFRS 112 Income Taxes. and © IFRS Foundation 467 . 2 Scope 3 This Standard shall be applied in selecting and applying accounting policies. International Financial Reporting Standards (IFRSs) are Standards and Interpretations issued by the International Accounting Standards Board (IASB). rules and practices applied by an entity in preparing and presenting financial statements.

measurement and disclosure of amounts of elements of financial statements as if a prior period error had never occurred. could be the determining factor.* Malaysian Financial Reporting Standards (MFRSs)θ are Standards and Interpretations adopted by the Malaysian Accounting Standards Board (MASB). it is impracticable to apply a change in an accounting policy retrospectively or to make a retrospective restatement to correct an error if: (a) the effects of the retrospective application or retrospective restatement are not determinable. and misstatements in. reliable information that: (a) was available when financial statements for those periods were authorised for issue. mistakes in applying accounting policies. the entity’s financial statements for one or more prior periods arising from a failure to use. Material Omissions or misstatements of items are material if they could. The size or nature of the item. or misuse of.MFRS 108 (d) SIC Interpretations. and (b) could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements. θ 468 © IFRS Foundation . influence the economic decisions that users make on the basis of the financial statements. individually or collectively. * Definition of IFRSs amended after the name changes introduced by the revised Constitution of the IFRS Foundation in 2010. Retrospective application is applying a new accounting policy to transactions. They comprise: (a) Malaysian Financial Reporting Standards. and fraud. or a combination of both. oversights or misinterpretations of facts. For a particular prior period. The term ‘Malaysian Financial Reporting Standards (MFRSs)’ refers to Standards (including IC Interpretations) issued by the MASB that apply to any reporting period beginning on or after 1 January 2012. and (b) IC Interpretations. Retrospective restatement is correcting the recognition. other events and conditions as if that policy had always been applied. Such errors include the effects of mathematical mistakes. Impracticable Applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. Prior period errors are omissions from.

the accounting policy or policies applied to that item shall be determined by applying the MFRS. The Framework for the Preparation and Presentation of Financial Statements states in paragraph 25* that ‘users are assumed to have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information with reasonable diligence. and (b) recognising the effect of the change in the accounting estimate in the current and future periods affected by the change. and so be material. other events and conditions to which they apply. Prospective application of a change in accounting policy and of recognising the effect of a change in an accounting estimate. Accounting policies Selection and application of accounting policies 7 When a MFRS specifically applies to a transaction. Paragraph 25 was superseded by Chapter 3 of the Conceptual Framework. In November 2011 the MASB replaced the Framework with the Conceptual Framework for Financial Reporting. or (c) the retrospective application or retrospective restatement requires significant estimates of amounts and it is impossible to distinguish objectively information about those estimates that: (i) provides evidence of circumstances that existed on the date(s) as at which those amounts are to be recognised. 6 Assessing whether an omission or misstatement could influence economic decisions of users. 8 * © IFRS Foundation 469 . MFRSs set out accounting policies that the MASB has concluded result in financial statements containing relevant and reliable information about the transactions. the assessment needs to take into account how users with such attributes could reasonably be expected to be influenced in making economic decisions. and would have been available when the financial statements for that prior period were authorised for issue (ii) from other information. other events and conditions occurring after the date as at which the policy is changed. requires consideration of the characteristics of those users. are: (a) applying the new accounting policy to transactions. respectively. measured or disclosed.’ Therefore. Those policies The Framework for the Preparation and Presentation of Financial Statements was adopted by the MASB in 2007. other event or condition.MFRS 108 (b) the retrospective application or retrospective restatement requires assumptions about what management’s intent would have been in that period.

and consider the applicability of. other accounting literature and accepted industry practices. and are complete in all material respects. management may also consider the most recent pronouncements of other standard-setting bodies that use a similar conceptual framework to develop accounting standards. financial performance or cash flows. unless a MFRS In November 2011 the MASB replaced the Framework with the Conceptual Framework for Financial Reporting. management shall use its judgement in developing and applying an accounting policy that results in information that is: (a) relevant to the economic decision-making needs of users. In making the judgement described in paragraph 10. and not merely the legal form. immaterial departures from MFRSs to achieve a particular presentation of an entity’s financial position. * 470 © IFRS Foundation . Guidance that is not an integral part of the MFRSs does not contain requirements for financial statements. Consistency of accounting policies 13 An entity shall select and apply its accounting policies consistently for similar transactions. 9 MFRSs are accompanied by guidance to assist entities in applying their requirements. in that the financial statements: (i) (ii) (iii) (iv) (v) 11 represent faithfully the financial position. are neutral. other events and conditions. However. management shall refer to. All such guidance states whether it is an integral part of MFRSs. income and expenses in the Framework. to the extent that these do not conflict with the sources in paragraph 11. liabilities. financial 10 reflect the economic substance of transactions. and (b) the definitions. and (b) reliable. In the absence of a MFRS that specifically applies to a transaction.* 12 In making the judgement described in paragraph 10. are prudent. other event or condition. or leave uncorrected. recognition criteria and measurement concepts for assets. Guidance that is an integral part of the MFRSs is mandatory. other events and conditions. ie free from bias. it is inappropriate to make. performance and cash flows of the entity. the following sources in descending order: (a) the requirements in MFRSs dealing with similar and related issues.MFRS 108 need not be applied when the effect of applying them is immaterial.

15 Users of financial statements need to be able to compare the financial statements of an entity over time to identify trends in its financial position. 16 18 Applying changes in accounting policies 19 Subject to paragraph 23: (a) an entity shall account for a change in accounting policy resulting from the initial application of a MFRS in accordance with the specific transitional provisions.MFRS 108 specifically requires or permits categorisation of items for which different policies may be appropriate. If a MFRS requires or permits such categorisation. or (b) results in the financial statements providing reliable and more relevant information about the effects of transactions. other events or conditions that differ in substance from those previously occurring. other events or conditions on the entity’s financial position. The following are not changes in accounting policies: (a) the application of an accounting policy for transactions. and (b) the application of a new accounting policy for transactions. Plant and Equipment or MFRS 138 Intangible Assets is a change in an accounting policy to be dealt with as a revaluation in accordance with MFRS 116 or MFRS 138. Paragraphs 19–31 do not apply to the change in accounting policy described in paragraph 17. or changes an accounting policy voluntarily. Changes in accounting policies 14 An entity shall change an accounting policy only if the change: (a) is required by a MFRS. an appropriate accounting policy shall be selected and applied consistently to each category. in that MFRS. other events or conditions that did not occur previously or were immaterial. financial performance and cash flows. 17 The initial application of a policy to revalue assets in accordance with MFRS 116 Property. the same accounting policies are applied within each period and from one period to the next unless a change in accounting policy meets one of the criteria in paragraph 14. if any. it shall apply the change retrospectively. © IFRS Foundation 471 . financial performance or cash flows. and (b) when an entity changes an accounting policy upon initial application of a MFRS that does not include specific transitional provisions applying to that change. Therefore. rather than in accordance with this Standard.

24 25 26 472 © IFRS Foundation . the entity shall adjust the comparative information to apply the new accounting policy prospectively from the earliest date practicable. However. early application of a MFRS is not a voluntary change in accounting policy. apply an accounting policy from the most recent pronouncements of other standard-setting bodies that use a similar conceptual framework to develop accounting standards. Limitations on retrospective application 23 When retrospective application is required by paragraph 19(a) or (b). other event or condition. The amount of the resulting adjustment relating to periods before those presented in the financial statements is made to the opening balance of each affected component of equity of the earliest prior period presented. the entity shall adjust the opening balance of each affected component of equity for the earliest prior period presented and the other comparative amounts disclosed for each prior period presented as if the new accounting policy had always been applied. Retrospective application to a prior period is not practicable unless it is practicable to determine the cumulative effect on the amounts in both the opening and closing statements of financial position for that period. at the beginning of the current period. Retrospective application 22 Subject to paragraph 23. which may be the current period. in accordance with paragraph 12. Usually the adjustment is made to retained earnings. When an entity applies a new accounting policy retrospectively.MFRS 108 20 21 For the purpose of this Standard. the adjustment may be made to another component of equity (for example. management may. and shall make a corresponding adjustment to the opening balance of each affected component of equity for that period. a change in accounting policy shall be applied retrospectively except to the extent that it is impracticable to determine either the period-specific effects or the cumulative effect of the change. When it is impracticable to determine the period-specific effects of changing an accounting policy on comparative information for one or more prior periods presented. the entity chooses to change an accounting policy. If. when a change in accounting policy is applied retrospectively in accordance with paragraph 19(a) or (b). When it is impracticable to determine the cumulative effect. that change is accounted for and disclosed as a voluntary change in accounting policy. In the absence of a MFRS that specifically applies to a transaction. it applies the new accounting policy to comparative information for prior periods as far back as is practicable. following an amendment of such a pronouncement. to comply with a MFRS). of applying a new accounting policy to all prior periods. the entity shall apply the new accounting policy to the carrying amounts of assets and liabilities as at the beginning of the earliest period for which retrospective application is practicable.

(e) (f) when applicable. 27 When it is impracticable for an entity to apply a new accounting policy retrospectively. in accordance with paragraph 25. or might have an effect on future periods. 29 When a voluntary change in accounting policy has an effect on the current period or any prior period. liabilities and equity arising before that date. is also adjusted as far back as is practicable. for basic and diluted earnings per share. the amount of the adjustment: (i) (ii) for each financial statement line item affected. Disclosure 28 When initial application of a MFRS has an effect on the current period or any prior period. applies the new policy prospectively from the start of the earliest period practicable. the circumstances that led to the existence of that condition and a description of how and from when the change in accounting policy has been applied. (c) the nature of the change in accounting policy. and if MFRS 133 Earnings per Share applies to the entity. a description of the transitional provisions. an entity shall disclose: © IFRS Foundation 473 . (d) when applicable. would have an effect on that period except that it is impracticable to determine the amount of the adjustment. Paragraphs 50–53 provide guidance on when it is impracticable to apply a new accounting policy to one or more prior periods. or for periods before those presented. such as historical summaries of financial data.MFRS 108 Any other information about prior periods. because it cannot determine the cumulative effect of applying the policy to all prior periods. to the extent practicable. Financial statements of subsequent periods need not repeat these disclosures. the transitional provisions that might have an effect on future periods. or might have an effect on future periods. the entity. that the change in accounting policy is made in accordance with its transitional provisions. Changing an accounting policy is permitted even if it is impracticable to apply the policy prospectively for any prior period. for the current period and each prior period presented. (b) when applicable. and (h) if retrospective application required by paragraph 19(a) or (b) is impracticable for a particular prior period. to the extent practicable. would have such an effect except that it is impracticable to determine the amount of the adjustment. It therefore disregards the portion of the cumulative adjustment to assets. (g) the amount of the adjustment relating to periods before those presented. an entity shall disclose: (a) the title of the MFRS.

Estimation involves judgements based on the latest available. Financial statements of subsequent periods need not repeat these disclosures. or if that impact is not known or reasonably estimable. a statement to that effect. the entity shall disclose: (a) this fact. and (e) either: (i) (ii) a discussion of the impact that initial application of the MFRS is expected to have on the entity’s financial statements. and if MFRS 133 applies to the entity. to the extent practicable. an entity considers disclosing: (a) the title of the new MFRS. reliable information. the circumstances that led to the existence of that condition and a description of how and from when the change in accounting policy has been applied. 31 In complying with paragraph 30. (c) for the current period and each prior period presented. © IFRS Foundation . (c) the date by which application of the MFRS is required. (d) the amount of the adjustment relating to periods before those presented. For example. many items in financial statements cannot be measured with precision but can only be estimated. and (b) known or reasonably estimable information relevant to assessing the possible impact that application of the new MFRS will have on the entity’s financial statements in the period of initial application. estimates may be required of: (a) 474 bad debts. the amount of the adjustment: (i) (ii) for each financial statement line item affected. 30 When an entity has not applied a new MFRS that has been issued but is not yet effective.MFRS 108 (a) the nature of the change in accounting policy. (d) the date as at which it plans to apply the MFRS initially. (b) the nature of the impending change or changes in accounting policy. and (e) if retrospective application is impracticable for a particular prior period. (b) the reasons why applying the new accounting policy provides reliable and more relevant information. to the extent practicable. for basic and diluted earnings per share. Changes in accounting estimates 32 As a result of the uncertainties inherent in business activities. or for periods before those presented.

and is not a change in an accounting estimate. a change in the estimated useful life of. or expected pattern of consumption of the future economic benefits embodied in. The effect.MFRS 108 (b) inventory obsolescence. if the change affects that period only. the change is treated as a change in an accounting estimate. A change in the measurement basis applied is a change in an accounting policy. The use of reasonable estimates is an essential part of the preparation of financial statements and does not undermine their reliability. or relates to an item of equity. depreciable assets. other events and conditions from the date of the change in estimate. on future periods is recognised as income or expense in those future periods. and (e) 33 34 warranty obligations. However. a depreciable asset affects depreciation expense for the current period and for each future period during the asset’s remaining useful life. it shall be recognised by adjusting the carrying amount of the related asset. the effect of the change relating to the current period is recognised as income or expense in the current period. if the change affects both. For example. or (b) the period of the change and future periods. 35 36 37 To the extent that a change in an accounting estimate gives rise to changes in assets and liabilities. In both cases. (c) the fair value of financial assets or financial liabilities. the revision of an estimate does not relate to prior periods and is not the correction of an error. or the expected pattern of consumption of the future economic benefits embodied in. (d) the useful lives of. a change in the estimate of the amount of bad debts affects only the current period’s profit or loss and therefore is recognised in the current period. When it is difficult to distinguish a change in an accounting policy from a change in an accounting estimate. liability or equity item in the period of the change. other than a change to which paragraph 37 applies. or the profit or loss of both the current period and future periods. By its nature. shall be recognised prospectively by including it in profit or loss in: (a) the period of the change. Prospective recognition of the effect of a change in an accounting estimate means that the change is applied to transactions. The effect of a change in an accounting estimate. A change in an accounting estimate may affect only the current period’s profit or loss. An estimate may need revision if changes occur in the circumstances on which the estimate was based or as a result of new information or more experience. if any. 38 © IFRS Foundation 475 .

measurement. and these prior period errors are corrected in the comparative information presented in the financial statements for that subsequent period (see paragraphs 42–47). When it is impracticable to determine the period-specific effects of an error on comparative information for one or more prior periods presented. When it is impracticable to determine the cumulative effect. financial performance or cash flows.MFRS 108 Disclosure 39 An entity shall disclose the nature and amount of a change in an accounting estimate that has an effect in the current period or is expected to have an effect in future periods. If the amount of the effect in future periods is not disclosed because estimating it is impracticable. 42 Limitations on retrospective restatement 43 A prior period error shall be corrected by retrospective restatement except to the extent that it is impracticable to determine either the period-specific effects or the cumulative effect of the error. liabilities and equity for the earliest prior period presented. liabilities and equity for the earliest period for which retrospective restatement is practicable (which may be the current period). restating the opening balances of assets. or (b) if the error occurred before the earliest prior period presented. Potential current period errors discovered in that period are corrected before the financial statements are authorised for issue. presentation or disclosure of elements of financial statements. an entity shall disclose that fact. an entity shall correct material prior period errors retrospectively in the first set of financial statements authorised for issue after their discovery by: (a) restating the comparative amounts for the prior period(s) presented in which the error occurred. the entity shall restate the opening balances of assets. However. Subject to paragraph 43. Financial statements do not comply with MFRSs if they contain either material errors or immaterial errors made intentionally to achieve a particular presentation of an entity’s financial position. 44 45 476 © IFRS Foundation . 40 Errors 41 Errors can arise in respect of the recognition. the entity shall restate the comparative information to correct the error prospectively from the earliest date practicable. material errors are sometimes not discovered until a subsequent period. except for the disclosure of the effect on future periods when it is impracticable to estimate that effect. of an error on all prior periods. at the beginning of the current period.

to the extent practicable. Corrections of errors are distinguished from changes in accounting estimates. Financial statements of subsequent periods need not repeat these disclosures. For example. 47 48 Disclosure of prior period errors 49 In applying paragraph 42. liabilities and equity arising before that date. Paragraphs 50–53 provide guidance on when it is impracticable to correct an error for one or more prior periods. for basic and diluted earnings per share. the amount of the correction at the beginning of the earliest prior period presented. the entity. in accordance with paragraph 45. Any information presented about prior periods. It therefore disregards the portion of the cumulative restatement of assets. the circumstances that led to the existence of that condition and a description of how and from when the error has been corrected. the amount of the correction: (i) (ii) (c) for each financial statement line item affected.MFRS 108 46 The correction of a prior period error is excluded from profit or loss for the period in which the error is discovered. Accounting estimates by their nature are approximations that may need revision as additional information becomes known. its prospective application to prior periods) or retrospective restatement to correct a prior period error. and (d) if retrospective restatement is impracticable for a particular prior period. it is impracticable to adjust comparative information for one or more prior periods to achieve comparability with the current period. Impracticability in respect of retrospective application and retrospective restatement 50 In some circumstances. including any historical summaries of financial data. data may not have been collected in the prior period(s) in a way that allows either retrospective application of a new accounting policy (including. (b) for each prior period presented. restates the comparative information prospectively from the earliest date practicable. an entity shall disclose the following: (a) the nature of the prior period error. For example. and if MFRS 133 applies to the entity. When it is impracticable to determine the amount of an error (eg a mistake in applying an accounting policy) for all prior periods. for the purpose of paragraphs 51–53. is restated as far back as is practicable. the gain or loss recognised on the outcome of a contingency is not the correction of an error. © IFRS Foundation 477 . and it may be impracticable to recreate the information.

Estimation is inherently subjective. Developing estimates is potentially more difficult when retrospectively applying an accounting policy or making a retrospective restatement to correct a prior period error. In addition. measured or disclosed in a prior period. retrospectively applying a new accounting policy or correcting a prior period error requires distinguishing information that (a) provides evidence of circumstances that existed on the date(s) as at which the transaction. 478 © IFRS Foundation . The fact that significant estimates are frequently required when amending comparative information presented for prior periods does not prevent reliable adjustment or correction of the comparative information. other event or condition occurred. either in making assumptions about what management’s intentions would have been in a prior period or estimating the amounts recognised. because of the longer period of time that might have passed since the affected transaction. other events or conditions.MFRS 108 51 It is frequently necessary to make estimates in applying an accounting policy to elements of financial statements recognised or disclosed in respect of transactions. or correcting amounts for. When retrospective application or retrospective restatement would require making a significant estimate for which it is impossible to distinguish these two types of information. For example. Therefore. it is impracticable to apply the new accounting policy or correct the prior period error retrospectively. when an entity corrects a prior period error in calculating its liability for employees’ accumulated sick leave in accordance with MFRS 119 Employee Benefits. However. 53 Hindsight should not be used when applying a new accounting policy to. and estimates may be developed after the reporting period. other event or condition occurred. a prior period. and 52 (b) would have been available when the financial statements for that prior period were authorised for issue from other information. it does not change their basis of measurement for that period if management decided later not to hold them to maturity. it is impracticable to distinguish these types of information. it disregards information about an unusually severe influenza season during the next period that became available after the financial statements for the prior period were authorised for issue. other event or condition occurred. namely. for the estimate to reflect the circumstances that existed when the transaction. the objective of estimates related to prior periods remains the same as for estimates made in the current period. when an entity corrects a prior period error in measuring financial assets previously classified as held-to-maturity investments in accordance with MFRS 139 Financial Instruments: Recognition and Measurement. For some types of estimates (eg an estimate of fair value not based on an observable price or observable inputs).

If an entity applies this Standard for a period beginning before 1 January 2005. it shall disclose that fact.MFRS 108 Effective date 54 An entity shall apply this Standard for annual periods beginning on or after 1 January 2005. Withdrawal of other pronouncements 55 56 [Deleted by MASB] [Deleted by MASB] © IFRS Foundation 479 . Earlier application is encouraged.

MFRS 108 Deleted IAS 8 text Deleted IAS 8 text is produced for information only and does not form part of MFRS 108. Paragraph 55 This Standard supersedes IAS 8 Net Profit or Loss for the Period. Fundamental Errors and Changes in Accounting Policies. Paragraph 56 This Standard supersedes the following Interpretations: (a) SIC-2 Consistency—Capitalisation of Borrowing Costs. revised in 1993. 480 © IFRS Foundation . and (b) SIC-18 Consistency—Alternative Methods.