IND AS 8

Accounting Policy, change in A/c estimates, Errors.

Scope: Selection and application of A/c policy

Accounting for change in A/c policy
Change in A/c estimates and its treatment
Correction of prior period errors.

Accounting Policy:
Accounting Policies are specific accounting principles, bases, rules, conditions and practices followed
in preparation and presentation of financial statements.
e.g. - Stock valuation Policy (FIFO, WAM)
- Investment Recognitions
- PPE Revaluation/ Cost Model Policy
- Treatment of Forex
- Treatment of Borrowing Cost

 Selection of A/c Policy:

IND AS exists IND AS does not exists

Select and apply Select Voluntary

A/c policy in line Application which should
With Ind AS be based on Best Judgement

Objective while Basis of Judgement

st
Making judgement 1 Preference: Check out
Similar Treatment in
Other Ind AS
nd
To make F.S. more 2 Preference: Framework of Ind
Relevant and Reliable AS for general
Compliance with Law principles
rd
+ 3 Preference: Pronouncement of
More Prudent, unbiased, IASB
Complete, in line with 4th Preference: Industry practices.
Substance over Form.

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 Consistency of A/c Policy:
 Similar Policy Should be followed for similar transaction unless INDAS specifics different
Policies
E.g. - PPE are taken at Cost or Revaluation Basis
- Investment Prop. – at Cost
- Factory Building – Cost Model
- Office Building – Rev. Model Allowed

 Consistency is to be maintained for True and Fair View of Accounts as well as to make them
comparable.

 Change in A/c Policy:

If it is Required by Ind AS If it is Required by Law If it is required as a

Voluntary change
i.e. for better
preparation and
presentation of F.S.
& more in line with
Substance over form
And substance over
Law.

 How to Apply Change in A/c Policy:

Transitional effects are given No Transitional effects

Are given in Ind AS are given in Ind AS
(Voluntary application)
Follow Ind AS
Change A/c policy
Retrospectively

(i) If means adjust Asset/Liability / Equity as if new Policy was in effect since Beginning.
(ii) Old financial statements are not to be altered.
(iii) Comparatives are to be restated.
(iv) If Retrospective Adjustment is impracticable then apply New policy from the period whenever
possible (i.e. current year)
Reasons
 The Retrospectives effect is not determinable.
 It requires assumption of management for those prior person.
 It requires significant estimates for those prior periods.

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 Retrospective Application: Application of new A/c policy as if the policy had always been
applied.

 Retrospective Restatement: Correction of recognition, measurement and disclosure as if no prior

period errors had occurred.

Exceptions to change in
A/c Policy

Introduction of new Previously Revaluation of PPE

Of new policy Immaterial Transaction or I.A. for the
first time
When any new transition Now, becomes Material, (cost to Rev.), it is
Takes place which is hence new A/c policy change in A/c policy
Different from earlier is formed. But Retrospective
Transaction Application is not
E.g. Forex transaction Required
For first time for and equity
Any Subsequent
change will required
Return. Application

 Disclosures for change in A/c Policy:

 Name of Ind AS requiring change in A/c policy
 Transitional Provision applied.
 Nature of Change.
 Effect of change an P & L and EPS
 Reasons for change
 If change was Prospective, then reason for it. (why impracticable)
 If policy is changed on voluntary Basis, disclosure is needed for Nature and effect of such
change.

 Change in A/c Estimates:

 A/c estimates involves judgements based on reliable information e.g. bad DROL, debts,
warranty obligations, etc.
 Change in A/c Estimates involves change in carrying amount of Asset/ Liability or
consumption of asset or estimation of Future Economic Benefits arising from new information
or new development other than Error. – Not Related to Price Period.
 Give Effect of change in A/c estimates PROSPECTIVELY.

 Disclosure: Nature of change in A/c estimate

Effect of change in A/c estimate

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 Errors:
 Errors are omissions or misstatements in financial statements from failure to use/ misuse
reliable information that was available / could have been available. It is also called “Prior
Period Error”.
 Error can arise in respect of Recognition, measurement, presentation or disclosures of elements
in F.S.
 If errors were intentional, then statement of compliance cannot be given.
 Types of error 1) Mathematical Error
2) Omission
3) Misinterpretation of frets/ Fraud

Treatment of Error:

Current Period Error Errors discovered for earliest Errors discovered of

prior period “period before
Ind AS-10 earliest prior period”
Retrospectively Restate the
Change if before amount of comparatives retrospectively
Approval Restate opening
F.S. of 2013-14 balances of Assets,
Error of 2012-13 Liabilities, equities
Rectify it in Comparatives of earliest prior
Period presented

F.S. of 2013-14
Error of 2010-11

Restate figures of
Years 2012-13
Retrospectively

 If Retrospective effect of Error is impracticable, Prospective treatment should be given.

 Disclosures: - Nature of Error

- Effect of error in P & L and EPS
- If it is impracticable, reason of it.
- Corrections made in comparatives.

 Difference between Ind AS – 8 and As – 5:

Ind AS- 8 AS – 5
Objective Selection & Change in A/c Classification and
Policies & A/c estimates, its A/c disclosure of certain item
treatment and Correction of in P & L A/c

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 errors.
enhance Relevance &
Reliability, Comparability of
F.S
Extra Ordinary Items EOI classified as operating EOI exists
items or Exceptional items
Rectification of errors Retrospective Restatement Prospective Restatement
Errors Include Fraud Doesn’t include Fraud
A/c policy definition Includes bases Rules, Practices Narrow definition
etc
Prior Period Errors Prior Period item
Comparative figure Given Limited
Treatment
Retrospective effect Guidance No Guidance for
+ Accounting
Impracticable situation - Pro

1. A Ltd. was capitalizing certain Exp. In Asset in Past years. It has capitalized following Exp. Till
date.
(Rs.) Dep. Till date
2013-14 10,000 1000
2014-15 15,000 1500
2015-16 20,000 2000
2016-17 22,000 2200

2. X Ltd Purchased Plant Rs. 10,00,000 as on 1/4/ 16 10% SLM – Depreciation It should have been
12% WDV.
2014-15 2015-16 2016-17 2017-18
Sales 5,00,000 6,00,000 7,00,000 8,00,000
COGS 2,00,000 2,50,000 2,80,000 3,00,000
Depreciaton 1,00,000 1,00,000 1,00,000 ?

Tax rate is 30% for all the years Balance of Retained Earnings 1/4/16 was Rs. 2,20,000. Given
necessary Adjustment as per Ind AS: 8 & Provide extracts for retained earnings.

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