21/02/2022

CONCEPTUAL FRAMEWORK & ACCOUNTING

STANDARDS
(BATHEOAX)

Change in Accounting Policies, Change in Accounting Estimates and

Errors

Prepared by: Ms. Grace A. Padiernos, CPA, CMA

PROF. GRACE A. PADIERNOS, CPA, CMA

WARNING

You may not copy, reproduce,

distribute, publish, display, perform,
modify, create derivative works,
transmit, or in any way exploit any
such content, nor may you distribute
any part of this content, sell or offer it
for sale, or use such content.

PROF. GRACE A. PADIERNOS, CPA, CMA

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PROF. GRACE A. PADIERNOS, CPA, CMA

Observe and
Respect the
Republic Act
No. 8293, An
Act
Prescribing
the
Intellectual
Property
Rights Law
(IPR).

THIS MATERIAL IS INTENDED FOR

BATHEOAX ONLY:
Do not share this in any public
Do not share this material to or social media sharing sites
anyone who is not enrolled in or study resources websites
this class. (Example: SlideShare, Course
Hero etc.)

PROF. GRACE A. PADIERNOS, CPA, CMA

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Intellectual Property
Rights of Materials or Resources

Understand that these materials and resources are the property of

the National University - Laguna, copyrighted to the respective
authors of each material or resource. Students shall use these
materials and resources (Example: PowerPoint or PDF files or
recorded videos of lesson, etc.) only for the intended purpose of
learning in this course. To ensure that these materials are not
reproduced, shared, or used outside of the University and for
purposes not consistent with the intent of the course.
PROF. GRACE A. PADIERNOS, CPA, CMA

Change in Accounting Policy

• Accounting policies are the specific principles. Bases,

conventions, rules and practices in preparing and
presenting financial statements.

PROF. GRACE A. PADIERNOS, CPA, CMA

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Change in Accounting Policy

• An entity shall change an accounting policy if the change
– Is required by an IFRS; or
– Results in the financial statements providing reliable and
more relevant information about the effects of transactions,
other events or conditions on the entity’s financial position,
financial performance or cash flows.

PROF. GRACE A. PADIERNOS, CPA, CMA

Voluntary and Involuntary change

in accounting policy
• A change in accounting policy that is required by an IFRS is
referred to as involuntary change in accounting policy.
• A change that is effected because the management assesses
that the financial statements would be more relevant to the users
is referred to as voluntary change in accounting policy.
• Note: Early application of an IFRS is not a voluntary change in
accounting policy.

PROF. GRACE A. PADIERNOS, CPA, CMA

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Not a change in accounting policy

• The following are not changes in accounting policies as
provided under paragraph 16 of IAS 8:
a. The application of an accounting policy for transactions,
other events, or conditions that differ in substance from
those previously occurring; and
b. The application of new accounting policy for transactions,
other events or conditions that did not occur previously or
were immaterial.

PROF. GRACE A. PADIERNOS, CPA, CMA

Not a change in accounting policy

• The change in accounting for equity securities from equity
method to accounting for measurement at fair value through
other comprehensive income because the investee ceases to be
an associate of the reporting enterprise.
• Presenting for the first time a Non-Current Asset Held for Sale
and measuring it at lower of carrying amount (depreciated) and
fair value less cost to sell because the entity encounters such
transaction for the first time, hence, requiring a different
treatment.

PROF. GRACE A. PADIERNOS, CPA, CMA

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Example of a voluntary change in

accounting policy
• Shifting from the weighted average method to the first-in,
first-out method (or vice versa) as decided by the
management to make the financial statements comparable
with other entities within the same industry.

PROF. GRACE A. PADIERNOS, CPA, CMA

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Accounting treatment for Changes in

Accounting Policies
• An involuntary change in accounting policy shall be accounted for as follows:
a. If the new accounting standard provides a transitional provision, the enterprise
has to follow the transitional provision.
b. If the new standard does not provide a transitional provision, the change shall be
treated retrospectively, unless it is impracticable to do so.
• Retrospective application means restating the comparative figures for the prior
periods presented as if the new accounting policy has always been applied.
• The cumulative effect of such change shall be considered as an adjustment to the
beginning balance of retained earnings or another component of equity of the
earliest prior period presented.

PROF. GRACE A. PADIERNOS, CPA, CMA

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Accounting treatment for Changes in

Accounting Policies
• Retrospective application of change in accounting policy is considered to be impracticable when the
enterprise cannot apply the new accounting policy retrospectively after making every reasonable effort to do
so.
• For a particular prior period, it is impracticable to apply a change in an accounting policy retrospectively if:
a. The effects of the retrospective application are not determinable;
b. The retrospective application requires assumptions about what management’s intent would have been
in that period; or
c. The retrospective application or retrospective restatement requires significant estimates of amounts and
it is impossible to distinguish objectively information about other information from those estimates that
provide evidence of circumstances that existed on the date(s) at which those amounts are to be
recognized, and would have been available for that prior period were authorized for issue.

PROF. GRACE A. PADIERNOS, CPA, CMA

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Accounting treatment for Changes in

Accounting Policies
• When an involuntary change in accounting policy is adopted in the current period, an entity shall disclose the following (par. 28,
IAS 8):
a. The title of the IFRS;
b. When applicable, that the change in accounting policy is made in accordance with transitional provisions;
c. The nature of the change in accounting policy;
d. When applicable, a description of the transitional provisions;
e. When applicable, the transitional provisions that might have an effect on future periods;
f. For the current period, and each period presented, to the extent practicable, the amount of the adjustment for each
financial line item affected and for the basic and diluted earnings per share;
g. The amount of the adjustment relating to periods before those presented, to the extent practicable; and
h. if retrospective application is impracticable, the circumstances that let to the existence of that condition and description of
how and from when the change in accounting policy has been applied.

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Accounting treatment for Changes in

Accounting Policies
• When an enterprise changes its accounting policy
voluntarily, it shall apply the change retrospectively,
adjusting the opening balance of each affected component
of the equity for the earliest period presented and other
comparative amounts disclosed for each prior period
presented as if the new accounting policy had always been
applied unless it is impracticable to do so.

PROF. GRACE A. PADIERNOS, CPA, CMA

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Accounting treatment for Changes in

Accounting Policies
• In addition, the entity shall disclose (par. 29, IAS 8):
a. The nature of change in accounting policy;
b. The reasons why applying the new accounting policy provides reliable and more relevant information;
c. For the current period and each prior period presented, to the extent practicable, the amount of the
adjustment for each financial statement line item affected and for basic and diluted earnings per share;
d. The amount of the adjustment relating to periods before those presented to the extent practicable; and
e. If retrospective application is impracticable, 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.

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Accounting treatment for Changes in

Accounting Policies
• In all circumstances that require restatement of prior periods presented, an
enterprise applying full IFRS will present three sets of statements of financial position:
– At the end of the current period;
– At the end of the previous period/s; and
– At the beginning of the earliest prior period presented.
• In all these circumstances, when an additional statement of financial position is
required, the statement of financial position at the beginning of the earliest prior
period presented shall have been adjusted to give effect to the retrospective
application of accounting policy, reclassification of financial statement element or any
other retrospective restatement.

PROF. GRACE A. PADIERNOS, CPA, CMA

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Change in accounting estimates

• IAS 8 defines a change in accounting estimate as an adjustment of the
carrying amount of a asset or a liability, or the amount of the periodic
consumption of an asset, that results from the assessment of the present
status of, and expected future benefits and obligations associated with, assets
and liabilities.
• Change in accounting estimates result from new information or new
developments and, accordingly, are not correction of errors.

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Change in accounting estimates

• The effect of a change in accounting estimate shall be recognized
prospectively by including it in profit or loss in
a. The period of change, if the change affects that period only; or
b. The period of the change and future periods, if the change affects both.

PROF. GRACE A. PADIERNOS, CPA, CMA

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Change in accounting estimates

• 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 the future periods, except for the disclosure of the effect on future
periods when it is impracticable to estimate the effect.
• If the amount of the effect in future periods is not disclosed because
estimating is impracticable, an entity shall disclose that fact.

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Errors
• Prior period errors are omissions from, and misstatements in, the entity’s
financial statements for one or more prior periods arising from a failure to
use, or misuse of, reliable information that was available when financial
statements for those periods were authorized for issue and could reasonably
be expected to have been obtained and taken into account in the
preparation and presentation of those financial statements.
• Examples: effects of mathematical mistakes, mistakes in applying
accounting policies, oversights or misinterpretations of facts, and fraud.

PROF. GRACE A. PADIERNOS, CPA, CMA

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Accounting treatment
• An entity shall correct material prior period errors retrospectively in the first
set of financial statements authorized for issue after their discovery by:
a. Restating the comparative amounts for the prior period(s) presented in
which the error occurred; or
b. If the error occurred before the earliest prior period presented, restating
the opening balances of assets, liabilities and equity for the earliest prior
period presented.
• Potential current period errors discovered before the issuance of the
financial statements are immediately corrected.

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Accounting treatment
• Other than restating the prior period financial statements, an entity shall disclose the following:
a) The nature of prior period error;
b) For each prior period presented, to the extent practicable, the amount of the correction:
1. For each financial statement line item affected; and
2. (If the company is required to present earnings per share information) for
basic and diluted earnings per share.
c) The amount of the correction at the beginning of the earliest prior period presented; and
d) If retrospective restatement is impracticable for a particular prior period, the circumstances
that led to the existence of that condition and a description of how and from when the error has
been corrected.

PROF. GRACE A. PADIERNOS, CPA, CMA

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Thank
you!!!

PROF. GRACE A. PADIERNOS, CPA, CMA

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