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IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors (Detailed Review)
IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors (Detailed Review)
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IFRS
IAS8AccountingPolicies,ChangesinAccounting OBURAPGuide
EstimatesandErrors(detailedreview)
Monday,May19,2014 Print Email 0
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Objective
Thisstandardpurportstoenhanceandmaintainthereliabilityandcomparabilityoffinancialstatements
byprovidingguidelinesfortheselectionandapplicationofaccountingpolicy,treatmentofchangein
accountingpolicyandaccountingestimatesalongwiththeguidanceforthecorrectionoferrors.Italso
providestherelateddisclosurerequirementsrequiredbytheentity.
RSSArticles
Scope
Therequirementsofthisstandardareapplicablefortheselectionandapplicationofaccountingpolicy,
treatmentofchangeinaccountingpolicyandaccountingestimatesalongwiththeaccountingforthe
correctionoferrorsrelatedtopreviousperiods.
LastAccounting
News
Definition
M&ADealActivityReached
AccountingPolicies
itshighestpointSince2008
Therules,practices,basesandprinciplesadoptedbytheentityinthepreparationandpresentationof
RecentACCAReportonthe
financialstatementsaretermedasaccountingpolicy
IncreasingscopeofShared
Services
ChangeinAccountingEstimate
MicrobusinessesOpinion
Itistheadjustmentinthecarryingvalueofanassetorliabilityasaresultofreview,ofthecurrentstatus,
withRegardstoMakingTax
oftheestimatedfutureeconomicbenefitsandobligationsrelatedtotheassetandliability.
DigitalProposal
Accountingestimateschangesduetotheavailabilityofnewandadvancedinformation
ordevelopments.
AccountantscanPlayan
ImportantRoleinReducing
InternationalFinancialReportingStandards(IFRSs)
Corruption
TheseareaccountingstandardsandrelatedInterpretations,whichareissuedandregulatedbythe
AATHasBeenApprovedas
InternationalAccountingStandardsBoard(IASB)andtheseencompasses:
anApprenticeAssessment
InternationalFinancialReportingStandards(IFRS)
Organization
InternationalAccountingStandards(IAS) IPSAS40,NewPublic
InterpretationsissuedbyIFRICand SectorAccountingStandard
IssuedbytheIPSASB
InterpretationsissuedbySIC
Material IAASBReleasesitsTwo
yearWorkPlantoEnhance
Theomissionormisstatementoftheinformationisconsideredasmaterial,ifitcan,individuallyor AuditQuality
collectively,effecttheeconomicdecisionoftheuserstakenonbasisofthefinancialstatements.The
informationcanbematerialbysize,ornature.
Allaccountingnews
PriorPeriodErrors
https://www.readyratios.com/articles/ifrs/ias8accountingpolicieschangesinaccountingestimatesanderrors.html 1/8
3/21/2017 IAS8AccountingPolicies,ChangesinAccountingEstimatesandErrors(detailedreview)
PriorPeriodErrors
Itisdefinedastheomissionsandmisstatementsinthefinancialstatementsofanentity,inoneormore
Have10minutestorelax?
previousaccountingperiods,whichoccursduetofailureofuseofinformation:
Playourunique
Whichwasavailablewhenfinancialstatementsofsuchaccountingperiodswerepreparedor Balancegame
Whichcouldbeavailableifcertainprocedurewouldhaveapplied PlayTheGame
Thismaycomprisethenumericalmistakes,misapplicationofaccountingpolicies,ormisinterpretationsof
circumstances,andfraud.
RetrospectiveApplication
Itistheapplicationofnewaccountingpolicytotherelatedeventsandtransactions,suchthatnew
accountingpolicyhadalwaysbeeninapplication.
RetrospectiveRestatement
Itisthecorrectionofamountsofelementsoffinancialstatementsrelatedtorecognitionand
measurement,suchthatifapreviousperioderrorhadnevertakenplace
ProspectiveApplication
Itistheapplicationofchangeinaccountingpolicyandchangeinanaccountingestimate,totherelated
eventsandtransactionsafterthedatewhentheaccountingpolicyischangedandincorporatingthe
effectofchangeinaccountingestimateinthecurrentandfutureaccountingperiods.
Impracticable
iftheentityisunabletoapplyaparticularrequirementofthestandard,makingeveryreasonableeffort,
suchasituationistermedasimpracticablesuchaswhentheeffectsoftheretrospectiveapplicationor
restatementarenotdeterminable
AccountingPolicy
SelectionandApplicationofAccountingPolicy
Theentityshouldconsiderthefollowingguidelinesfortheselectionandapplicationofaccountingpolicy
foralleventsandtransactions:
1)FirsttheentityshouldrefertotherelevantStandardsandInterpretationsissuedbytheIASB
2)Iftheguidelinesfortheselectionandapplicationofaccountingpolicyarenotavailableintherelated
standardsandinterpretationsissuedbyIASB,fortheparticulareventandtransaction,thenmanagement
isrequiredtouseitsownjudgmentintheselectionandapplicationofaccountingpolicyforsuchanevent
ortransaction.
However,suchapolicyshouldnotbeinconflictwiththequalitativecharacteristicsoffinancialstatements
andshouldbeincompliancewiththosequalitativecharacteristicsgivenintheIASBsframework.The
entitycanusetheguidanceavailablefromthefollowingsources:
InformationavailableinotherIFRSdealingwiththesimilarissues
Definitionofasset,liability,incomeandexpensegivenintheIASBsframework
RecognitionandmeasurementrulesgivenintheIASBsframework
Documentsofotheraccountingstandardboards
Industrypractices
Thisstandardrequiresthattheentityshouldapplytheselectedaccountingpolicyconsistentlyfromone
periodtothenextforsimilareventsandtransactions,toenabletheusersoffinancialstatementsin
evaluationofthefinancialperformanceandpositionoftheentityoverthedifferentperiods.
ChangeinAccountingPolicy
https://www.readyratios.com/articles/ifrs/ias8accountingpolicieschangesinaccountingestimatesanderrors.html 2/8
3/21/2017 IAS8AccountingPolicies,ChangesinAccountingEstimatesandErrors(detailedreview)
ChangeinAccountingPolicy
Theentityshouldnotchangetheselectedaccountingpolicyforthesimilareventsandtransactions,asit
wouldaffectthecomparabilityoffinancialstatements.However,theaccountingpolicycanbechange
onlyinthefollowingcircumstance:
WhenthechangeinaccountingpolicyisrequiredbyanIFRS
Whenmanagementbelievesthatchangeinaccountingpolicywouldresultinmorerelevantand
reliableinformationbeingreflectedinfinancialstatements
AccountingfortheChangeinAccountingPolicy
Theentitywillaccountforthechangeinaccountingpolicyinthecircumstanceinwhichchangein
accountingpolicyisallowed,asfollows:
Ifthechangeinaccountingpolicyarises,whenanIFRSrequiresthensuchchangeinaccounting
policywillbeaccountedforasperthetransitionalprovisiongiveninthethatstandardi.e.the
relevantstandardwillspecifyhowtoaccountforthechangeinaccountingpolicy,eitheritwillhave
prospectiveapplicationorretrospectiveapplication.However,iftherelevantstandard,requiringthe
changeinaccountingpolicydoesnotspecifythathowtoaccountforthechangeinaccounting
policy,thensuchchangeinaccountingpolicywillhaveretrospectiveapplication
Ifthechangeinaccountingpolicyarises,whenthemanagementbelievesthatthechangein
accountingpolicywouldresultinmorerelevantandreliableinformationbeingreflectedinfinancial
statements,thensuchchangeinaccountingpolicywillalsohaveretrospectiveapplication
However,followingsituationsdonotconstitutetothechangeinaccountingpolicy:
i)Theselectionandapplicationofanewaccountingpolicyfortheeventsandtransactionswhich
haveneveroccurredinthepast,suchasfirsttimereceiptofgovernmentgrantand
ii)Theselectionandapplicationofanewaccountingpolicyfortheeventsandtransactionswhich
aredifferentinsubstancefromeventsandtransactionsoccurringbefore
Thechangeintheabovementionedcircumstances(i)and(ii)willnotbetreatedasthechangein
accountingpolicytherefore,itwillhaveprospectiveapplicationinsuchcircumstances.
Themeasurementfromcosttorevaluationmodeloftheproperty,plantandequipmentunderIAS
16andintangibleassetsunderIAS38isachangeinaccountingpolicy,butitwillbeaccountedfor
aspertherequirementsofthosestandards,ratherthanIAS8.
RetrospectiveApplication
Whentheentityisrequiredtoapplythechangeinaccountingpolicyasretrospectively,theentitywill
applytheaccountingpolicytotherelatedeventsandtransactions,suchthatnewaccountingpolicyhad
alwaysbeeninapplication.Itwillbeaccountedforasfollows:
a)Theentitywilladjusttheeffectofthechangeinaccountingpolicyretrospectivelytotheextentitis
possibletodeterminetheeffectofchangeinaccountingpolicyinrespectofthepreviousperiodsi.e.the
entityisrequiredtoapplythenewaccountingpolicyinthepreviousperiodsasfarbackaspossible.
Forthispurpose,theentitywillapplythenewaccountingpolicytothecarryingvaluesofrelatedassets
andliabilitiesasatthestartoftheearliestaccountingperiod,towhichretrospectiveapplicationis
possible,thatmaybethecurrentaccountingperiodandtheresultingadjustmentwillbemadetothe
retainedearnings,asfollows:
Iftheeffectofchangeinaccountingpolicyrelatestopreviousperiodonly,theentitywillrestatethe
balancesofrelatedassetorliabilityinthepreviousperiodandacorrespondingadjustmentinthe
openingretainedearningsofcurrentyear
Iftheeffectofchangeinaccountingpolicyrelatestoprioraccountingperiodsthantheprevious
accountingperiodthentheadjustmentwillbemadeintheopeningretainedearningsofthe
comparativeyearandtheentitywillalsorestatethebalancesofrelatedassetsorliabilities
b)Ifitisnotpossibletodeterminetheperiodspecificeffectorcumulativeeffectofchangeinaccounting
policyinrespectofthepreviousperiodsthen,theentitywillapplythenewaccountingpolicyfromthe
startoftheearliestaccountingperiodfromwhichitispracticabletodoso.
https://www.readyratios.com/articles/ifrs/ias8accountingpolicieschangesinaccountingestimatesanderrors.html 3/8
3/21/2017 IAS8AccountingPolicies,ChangesinAccountingEstimatesandErrors(detailedreview)
startoftheearliestaccountingperiodfromwhichitispracticabletodoso.
Disclosures
Theentityisrequiredtodisclosethefollowingrelatedtotheaccountingpolicy:
Ifthechangeinaccountingpolicyarises,whenanIFRSrequirestheentitywilldisclose:
Thetitleofthestandard
Thedetailsofinchangeinaccountingpolicy
Thedetailsoftransitionalprovisiongiven(ifany)bythestandardtoaccountforchangein
accountingpolicy
Theeffectoftransitionalprovisionuponthefutureperiods(ifany)
Theamountofadjustmentrelatedtothecurrentyearandpriorperiodsduetothechangein
accountingpolicy
Thedetailsofthecircumstancesiftheretrospectiveapplicationsbecameimpracticableduetothe
periodspecificaffectorcumulativeeffectofthepreviousperiods
Ifthechangeinaccountingpolicyarises,whenmanagementbelievesthatchangeinaccountingpolicy
wouldresultinmorerelevantandreliableinformationbeingreflectedinfinancialstatements,theentity
willdisclosethefollowing:
Thedetailsofinchangeinaccountingpolicy
Thereasonhowthechangewillreflectthemorerelevantandreliableinformation
Theamountofadjustmentrelatedtothecurrentyearandpriorperiodsduetothechangein
accountingpolicy
Thedetailsofthecircumstancesiftheretrospectiveapplicationsbecameimpracticableduetothe
periodspecificaffectorcumulativeeffectofthepreviousperiods
Iftheentityisnotapplyingastandardwhichahsbeenissuedbutnotyeteffective,theentitywilldisclose
thefollowing:
Thetitleofthestandard
Itseffectivedatespecifiedinthatstandard
Thedatewhenentityintendstoapplysuchstandard
AccountingEstimates
Thesearethejudgmentsorassumptionstakenbytheentitybecauseofuncertaintiesattachingtothe
businesscircumstancesinordertodeterminethecarryingvalueofanassetorliabilityinthefinancial
statements.Itincludestheestimationof:
Usefullife
ResidualValue
DepreciationMethod
FairValue
NetRealizableValue
Provisions
ChangeinAccountingEstimates
Itistheadjustmentinthecarryingvalueofanassetorliabilityasaresultofreview,ofthecurrentstatus,
oftheestimatedfutureeconomicbenefitsandobligationsrelatedtotheassetandliability.
Accountingestimateschangesduetotheavailabilityofnewandadvancedinformation
ordevelopments.
AccountingforChangeinAccountingEstimate
Thestandardrequirestheentitytoaccountforthechangeinaccountingestimateprospectivelyi.e.itwill
beappliedintheyearofchangeifitaffectsthecurrentyearonly,inthecurrentandfutureyears,ifit
affectstheboth.
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3/21/2017 IAS8AccountingPolicies,ChangesinAccountingEstimatesandErrors(detailedreview)
affectstheboth.
Disclosures
Theentityisrequiredtodisclosethedetailsandtheeffectofchangeinaccountingestimaterelatedto
thecurrentandfutureyearsboth.
PriorPeriodError
Itisdefinedastheomissionsandmisstatementsinthefinancialstatementsofanentity,inoneormore
previousaccountingperiods,whichoccursduetofailureofuseofinformation:
Whichwasavailablewhenfinancialstatementsofsuchaccountingperiodswerepreparedor
Whichcouldbeavailableifcertainprocedurewouldhaveapplied
Thismaycomprisethenumericalmistakes,misapplicationofaccountingpolicies,ormisinterpretationsof
circumstances,andfraud.
AccountingforError
Theentitywillcorrecttheeffectoftheerrorbyretrospectiverestatementsuchaserrorhasnever
occurred,totheextentitispossibletodoso,asfollows:
Iftheerrorhasoccurredinpreviousperiod,byrestatingthebalancesinthecomparativeyear
correspondingadjustmenttotheopeningretainedearnings,ofthecurrentyear
Iftheerrorrelatestotheaccountingperiodprecedingthepreviousaccountingperiods,byrestating
thecarryingvaluesofrelatedassetorliabilityalongwithacorrespondingadjustmenttotheopening
retainedearnings,ofthecomparativeyear
Ifitisnotpossibletodeterminetheperiodspecificeffectorcumulativeeffectofanerrorinrespectofthe
previousperiodsthen,theentitywillrestatethebalancesfromthestartoftheearliestaccountingperiod
fromwhichitispracticabletodoso.
Disclosures
Theentityisrequiredtodisclosethefollowinginrespectofthepriorperioderror
Thedetailsoftheerror
Theamountofadjustmentmadeatthestartofthecurrentorcomparativeyearinrespectof
correctionoferror
Thedetailsofthecircumstancesiftheretrospectiveapplicationsbecameimpracticableduetothe
periodspecificaffectorcumulativeeffectofthepreviousperiods
WorkedExamples
Example1
ABLtdisengagedinamanufacturingbusiness.Uptoyearended31December2010theentitywas
usingfirstinfirstoutmethod(FIFO)methodforthevaluationofinventory,butinthecurrentyearended
31December2011,thedirectoroftheentityhasdecidedtousetheaveragecostingmethodasthey
believethatthiswillreflectmorerelevantvalueoftheinventoryandasaresulttheentityhasidentified
thefollowingimpactuponthevalueofinventoryduetothechangeinthevaluationmethod:
Years Inventoryincreasedby
31December09 20,000
31December10 30,000
31December11 40,000
Thestatementsofprofitorlossofthecurrentandpreviousyearbeforetheadjustmentswere:
$ $
TheretainedearningsofABltdwere$600,000at31December2009
Required:
Redraftthestatementofprofitorlossandpreparetheretainedearningscolumnofthestatementof
changesinequityforbothoftheyears31December2010and31December2011
Solution:
Asthechangeinthevaluationmethodoftheinventoryischangeinaccountingpolicy,itwillbeapplied
retrospectivelyfromtheyearofchangeasfollows:
Foreachoftheyear,thecostofsalewilldecreaseby$10,000duetoincreaseinclosingandopening
stockasfollows:
$ $
StatementofChangesinEquity
Fortheyearended31.12.11
Years RetainedEarning
Balanceasat01.01.2010 600,000
Effectofchangeinpolicy 20,000
Restatedbalanceat01.01.2010 620,000
Profitfortheyear31.12.2010 120,000
Balanceat31.12.2010 740,000
Profitfortheyear31.12.2011 140,000
Balanceat31.12.2011 880,000
Example2
ABLtdpurchasedaplantfor$160,000on1January2007,whichhasausefullifeof8years.However,
on1January2009,theentitysengineerreportedthatplanthasausefullifeofonly2years.
Required:
HowthechangeinusefullifeoftheplantwillbeaccountedforinthefinancialstatementsofABLtdfor
theyearended31December2009.
https://www.readyratios.com/articles/ifrs/ias8accountingpolicieschangesinaccountingestimatesanderrors.html 6/8
3/21/2017 IAS8AccountingPolicies,ChangesinAccountingEstimatesandErrors(detailedreview)
theyearended31December2009.
Solution:
Asthechangeinusefullifeoftheplantisachangeinaccountingestimate,itwillbeappliedprospectively
fromtheyearofchangeasfollows:
StatementofProfitorLoss 31.12.09
DepreciationExpense (60,000)
StatementofFinancialPosition 31.12.09
Assets:
NoncurrentAssets:
Plant(Working) 60,000
Working:
StatementofFinancialPosition 31.12.09
Costat01.01.2007 160,000
Less:AccumulatedDepreciation
($160,0000/8yrs)2yrs (40,000)
C.Vat01.01.2009 120,000
Less:CurrentYear($120,0000/2
yrs) (60,000)
C.Vat31.12.2009 60,000
Share:
https://www.readyratios.com/articles/ifrs/ias8accountingpolicieschangesinaccountingestimatesanderrors.html 7/8
3/21/2017 IAS8AccountingPolicies,ChangesinAccountingEstimatesandErrors(detailedreview)
https://www.readyratios.com/articles/ifrs/ias8accountingpolicieschangesinaccountingestimatesanderrors.html 8/8