NOTES ON MFRS 108: ACCOUNTING
POLICIES, CHANGES IN ACCOUNTING
ESTIMATES AND ERRORS
Accounting Policies: specific principles, bases,
conventions, rules & practices applied by
entity in preparing and presenting Financial
Statements.
Entity can change its Acc. Policies if and only if
i) Mandatory change – Application of std,
required by MFRS
ii) Voluntary/discretionary change – results in
more reliable & relevant fin. Statements
Changes in Accounting Policies
i) Recognition
Eg: classifying rental earned as revenue,
having previously classified as other
income
ii) Measurement basis
Eg: using Revaluation Model rather than
Cost Model
iii) Presentation & disclosure
Eg: Depreciation on MV now presented as
selling and distribution cost, previously
included as part of admin. expenses
Applied RETROSPECTIVELY: as if the policy
had always been applied.
i) Adjust the opening balance of each
affected component of equity for the
earliest prior period presented
ii) The other comparative amts disclosed
presented as if the new policy had always
been applied
Changes in Accounting Estimates
Accounting Estimates: the judgement applied
in determining the amount to be reported in
the FS.
Examples:
i) Bad debts & AFITR
ii) Provision for warranty (sales of G&S)
iii) Estimation of Impairment loss of NCA
iv) Inventory obsolescence
v) Revise EUL of depreciable assets (PPE or IP)
vi) Depreciation rates/methods
vii)Estimation of scrap/residual value
An estimate may have to be revised under the
circumstances on a result of new information,
new developments, or more experience.
Applied PROSPECTIVELY (not a correction of
errors and does not affect prior period).
i) Adjust the period of change if it affects
that period only (eg: bad debts)
ii) Adjust the period of change & future
periods if it affects both (eg: change in
EUL of asset)
Errors
Prior period errors: omissions from, and
misstatements in the entity’s FS for one or
more prior periods arising from a failure to
use, or misuse of reliable information.
Example:
i) Mathematical mistakes
ii) Mistakes in applying acc. policies
iii) Misinterpretation of facts
iv) Fraud
v) Oversights
Consider material if it influences the economic
decisions
Applied RETROSPECTIVELY:
- Prior year error- retained earnings/P&L
items (Previous error, Current discover)
- Current year error- rectify accordingly/
prospectively (Current error, Current
discover)
 NOTES ON MFRS110: EVENTS AFTER
REPORTING PERIOD
Events after reporting period: those events,
both favourable & unfavourable, that occur
between the end of the reporting period and
the date when financial statements are
authorized for issue (to shareholders,
supervisory board, interested parties)
Adjusting events
Events that provide further evidence of
conditions that existed at the end of reporting
period.
Eg;
i) Settlement after reporting period that
confirms entity had present obligation
(liability)
ii) Bankruptcy of customer after reporting
period (usually confirms that loss exist)
iii) Sale of inventories after reporting period
(may give evidence about their NRV)
iv) Determination after reporting period of
cost of assets purchased or the proceeds
from assets sold/ amount of profit or
bonus payments
v) Adequacy of provision for warranty costs,
claims & other accrued expenses
vi) Discovery of frauds/errors that shows FS
are incorrect
Events need to be adjusted accordingly.
Journal entries need to be recorded to reflect
the effect of events.
Non Adjusting events
Events that are indicative of conditions that
arose after the end of reporting period. (no
evidence is provided)
Eg:
i) Significant decline in FV of
investments after reporting period
ii) Merger exercise such as major
business combination (acquisition of
subsidiary, joint venture)
iii) Disposal of significant investment
iv) Announcing plan to discontinue an
operation/ major restructuring
v) Major purchase of NCA (property or
long-term asset)
vi) Destruction of major production plant
by natural disaster
vii) Major ordinary shares transactions
viii) Changes in tax rates
ix) Entering into capital commitments or
contingent liabilities
No adjustment is required, BUT
Disclosure of the nature and effect of the
events should be disclosed in the notes to the
financial statements.
Dividends Status
Dividends to holders of equity instruments
that are stated to be in respect of the period
covered by the FS and that are proposed or
declared after the reporting period but before
the FS are authorized for issue, shall not be
recognized as a liability in the SOFP. (treat as
non-adjusting event)
Rationale: Obligation to pay dividends arises
only after the reporting period, then entity
does not have an obligation at reporting date,
as it does not meet the criteria of present
obligation as per MFRS 137.
Liability should only be recognized if dividends
are proposed/declared before end of
reporting period and are still unpaid by the
end of reporting period.
Going Concern Status
Entity shall not prepare its FS on a going
concern basis if management determines
after the reporting period that it intends to
liquidate the entity or to cease trading, or that
it has no realistic alternative but to do so.
(requires disclosure)
 NOTES ON MFRS 137: PROVISIONS,
CONTINGENT LIABILITIES AND CONTINGENT
ASSET
Standard shall be applied for Provisions, Cont.
Liabilities and Cont. Assets except:
- those resulting from executory contracts
except onerous ((ie costs under contract
> the economic benefits expected to be
received)
- those covered by another standard such
as financial instrument, construction and
insurance contracts
Liabilities
Present obligation as a result of past events
which will be settled through outflow of
resources embodying economic benefits.
Provisions
Liabilities of uncertain timing or amount
which requires measurement by substantial
degree of estimation.
Depreciation, impairment of assets and
doubtful debts are adjustments to CA of
assets and not addressed in this standard.
Past event is deemed to be give rise to PO if
- it is probable (more likely than not;
>50%) that a present obligation exists at
end of reporting period
- if chances of occurrence > non-
occurrence
A provision shall be recognized when:
- an entity has a present obligation (legal
or constructive) as a result of a past
event; and
- it is probable that an outflow of
resources (> 50% chance) embodying
economic benefits will be required to
settle the obligation; and
- a reliable estimate can be made of the
amount of the obligation
If not ALL met, no provision shall be
recognized.
Accounting effects :
SOPL: Increase Expense, Decrease Profit
SOFP: Increase Liability, Increase Debt Ratio
Eg:
Dr Operation expense – SOPL 100,000
Cr Provision for damage – Liabiity 100,000
Measurement of Provision
i) Best estimate – determine rational amount
to settle obligations
ii) Risks and uncertainties – risks surrounding
the events & circumstances must be taken
into account
iii) Present value – effect of time value of
money is material, the amount of a
provision shall be the present value of the
expenditure
iv) Future events - the effect of future
changes in technology or legislations shall
be reflected in the amount of provision
where there is sufficient evidence that
they will occur
v) Expected disposal of asses – Gains
expected from disposal shall not be taken
into account
Legal obligation (ALL companies)
Derives from a contract (through its explicit or
implicit terms), legislation, or other operation
of law
Constructive obligation (ONE or CERTAIN)
Derives from an entity’s actions through an
established pattern of past practice, published
policies or specific current statement (eg:
announcement)
Indicates that entity will accept certain
responsibilities and create a valid expectation
to other parties that it will discharge the
responsibilities.
Contingent liabilities
Are not recognized as liabilities because they
are either:
- Possible obligations: yet to be confirmed
whether the entity has a present
obligation that could lead to an outflow
or resources embodying economic
benefits (<50%, >5%)
- Present obligations that do not meet the Expenditure required to settle a provision may
(3) recognition criteria in this standard be reimbursed by another party (eg. insurance
(>50%) claim).

Possible obligations whose existence will be

CONFIRMED only by the occurrence or non-
occurrence of one or more uncertain future
events that are not within the control of the
entity.
Recognition of CL
- Not recognized in FS but a disclosure note
to FS required stating the nature of event
and estimates of effects/facts in FS
- However, no acc. treatment/disclosure
needed if outflow of resource is remote
(<5% chances of happening)
Contingent assets
Possible assets arising from past event and
whose existence will be confirmed only by the
occurrence or non-occurrence of one or more
uncertain future events (which is not wholly
within the control of the entity)
Recognition of Reimbursement
- the reimbursement shall be recognized
when, and only when, it is virtually certain
that reimbursement will be received if the
entity settles the obligation
- the reimbursement shall be treated as a
separate asset. The amount recognized for
the reimbursement shall not exceed the
amount of the provision
- in the SOPL, the expense relating to a
provision may be presented net of the
amount recognized for a reimbursement

Contingent assets usually arise from

unplanned or other unexpected events that
give rise to the possibility of an inflow of
economic benefits to the entity.

Recognition of CA
- Should not be recognized in FS but should
be disclosed in the notes to the accounts
when an inflow of economic benefits is
probable (>50%,<95%)
- Virtually certain (>95%) recognize as an
asset and not disclose as contingent asset
- Not probable (<50%) no accounting
treatment required

Changes in Provision
- Provision must be reviewed at each
reporting date and adjusted to reflect best
current estimate
- If provision no longer required as it is not
probable, amount of provision must be
reversed

Reimbursements