Narrative Report: Chapter 11 - Accounting Policies, Estimates, & Errors

The class was asked to conduct an individual report catering to Chapters Eleven (11)
through Thirty-nine (39). Being the first reporter in line, the topic given to me was
about Accounting Policies, Accounting Estimates, and Errors under Chapter Eleven
(11). In preparation for my report, I watched video lessons on Youtube and utilized
the internet to dig deeper research about my topic; I maximized my resources and
time as much as I could. All the pieces of information I gathered were summarized
briefly in a PowerPoint presentation, and further details were discussed in my
reporting.

The Accounting Policies and Accounting Estimates are categories of accounting

changes; there’s actually another one which is the Changes in Reporting Entity but
the discussion mainly focused on the first two and the Prior Period Errors. The flow of
my discussion is the “What-When-How-Why” reporting style, as I believed that this is
the most suitable way to effectively and efficiently relay the information to my fellow
classmates. Before properly proceeding with the discussion, I tested first their
knowledge about the topic; I asked them to give their idea or hunch about the three
topics, and Ms. Vargas answered that she thinks they are adjustments that have to
be made in the financial statements. With that, I moved forward to the discussion, I
started first with the Accounting Policies: (What) I discussed its definition saying that
these are the standards approved and issued by the Philippine Financial Reporting
Standards Council which are called the Philippine Accounting Standards or PAS.
(When) Since the Change in Accounting Policies is a big shift and doing so alters the
whole preparation and presentation of financial statements which eventually
comprises comparability and consistency, it rarely occurs and only occurs when
required by the accounting standards and when the company, itself, believes that it
will result in a more relevant and faithfully represented information in the financial
statements. (How) Now, these changes are treated Retrospectively wherein entities
go back to prior periods to adjust the opening balance of the retained earnings in
accordance with the new accounting policy because this is as if we’ve been using the
said accounting policy from the very beginning. (Why) Also because every entity is
given a right to choose its own preferred accounting policies which they think are
very suitable to its business operations and transactions hence, changing them
without adjusting the prior periods will create discrepancies.

Moving on to the second topic, Accounting Estimates. (What) These are the
adjustments in the carrying amount of an asset or liabilities and periodic assumptions
of future benefit or obligation through assessing the present status of our current
assets and liabilities. The carrying amount in the definition refers to the original cost
less any depreciation or impairment. (When) These changes in accounting estimates
happen when we provide allowances for the following: doubtful accounts, useful life,
inventory obsolescence, and warranty costs. (How) Unlike in Accounting Policies, the
changes in Accounting Estimates are not treated Retrospectively but rather Currently
and Prospectively. This means that the effects are recognized in the current and
future periods, and there’s no need to go back to the prior periods for adjustments as
these changes are not errors. (When) Also, this is the treatment because changes
are expected and recurring, and doing estimates is a very significant task in the
accounting process especially in Management Accounting since we cannot
accurately measure our future expenses and revenues.
On to the last topic, Prior Period Errors. (What) These are just omissions and
misstatements we do when preparing financial statements. (When) These errors
happen due to the following events: Mathematical Mistakes, Misinterpretation of
Facts, Mistakes in Applying Accounting Policies, Fraud, and Oversight. (How) Since
this is an error, you might have thought that this is treated Retrospectively; you are
partly right, why? Because Prior Period Errors are also treated Prospectively. (Why) If
the error made was material to the prior periods then, the treatment is definitely
Retrospectively and restatement have to be made with proper disclosure. But, if it’s
deemed immaterial then, just proceed prospectively.

Before ending the discussion, I showed an example of restatement from an existing

entity but didn’t give the name for its privacy to show the class how it’s made and to
help them familiarize themselves with it. No questions were asked during and after
the discussion.