MFRS 108

MFRS 108 Accounting Policies, Changes in Accounting Estimates and

Errors prescribes the rules for three specific areas. They are:
 Changes in accounting policies
 Changes in accounting estimates
 Corrections of material errors (of a prior period)

CHANGES IN ACCOUNTING POLICIES (objectives mfrs 108)

MFRS 108
Account policies as ‘specific principles, bases, conventions, rules and practices
applied by an entity in preparing and presenting its financial statements’.
This Standard's objective is to specify the standards for choosing and altering
accounting policies, as well as the accounting treatment and disclosure of such
modifications as adjustments to accounting estimates and error corrections. The
Standard aims to improve the financial statements of an entity's relevance,
dependability, and comparability through time and with the financial statements of
other businesses.
There are two selection and application of accounting policies. Firstly, specific
standard or interpretation applying the requirements of that standard or
interpretation will help identify the accounting policy used when a specific standard
or interpretation is applicable to a transaction, event, or condition. Secondly, no
specific standard or interpretation. In the absence of a standard or interpretation,
management of the entity must apply judgement in developing and implementing an
accounting policy that produces information.
Furthermore, there are also consistency of accounting policies that mentioned about
the chosen accounting principles should be applied consistently to comparable
transactions, other events, and conditions. As example, an entity that allowed
change its accounting policy if there is required by a standard or an interpretation or
results in the financial statements providing reliable and more relevant information.
There are also two events that are not considered as changes in accounting policies.
Firstly, application of an accounting policy to transactions, other events, or conditions
that are materially different from those that have previously existed. Next , the
implementation of a new accounting procedure for transactions, other events, or
condition that either did not exist previously or were unimportant.
Lastly , retrospective change. Voluntary changes to accounting policies are
implemented retrospectively if there are no transitional measures in the Standard or
Interpretation. A prospective application is only permitted if it is impractical to
ascertain the period-specific impacts, the cumulative effect, or at the start of the
current period, of the policy change on the current or comparative information.
When a new accounting policy is applied to transactions in future periods after the
policy change, this is known as prospective application.

CHANGES IN ACCOUNTING ESTIMATES

Numerous things in the financial accounts are estimated since they can't be
quantified precisely. Provision for bad debts, the economic life of depreciable assets,
inventory obsolescence, and warranty obligations are a few examples of areas where
estimates are applied. These adjustments, which are known as changes in
accounting estimates rather than corrections of errors, have no effect on earlier time
periods. The rule is to apply the change in accounting estimate prospectively by
including in profit or loss in the period of the change, if the affects that period only
or the period of the change and future periods, if the change affects economic life of
an asset.

MFRS 110 EVENTS AFTER THE REPORTING PERIOD

MFRS 110 Events After the Reporting Period deals with events after the reporting
date that may affect the current year’s financial performance and position .
The Standard defines events after the reporting period as ‘those events, both
favourable and unfavourable, that occur between the reporting date and the date
when the financial statements are authorised for issue’.
Depending on each corporation’s management structure, legislative requirments,
and processes used in compiling and finalising the financial statements, the date on
which the financial statements are authorised for issue can vary . There are two
types of events . Firstly, those events that provide further evidence of conditions
that existed at the balance sheet date. Secondly, those events that are indicative of
conditions that arose after the reporting date.
Next, adjusting events after the reporting period is an entity that required to adjust
its financial statements for amounts recognised to reflect adjusting events after the
reporting period. Also, there are some of examples that an entity is required to
adjust the amounts recognised in its financial statements, or to recognised items
which were not previously recognised.
 Settlement after the reporting date of the amount to be settled following the
outcome of a court case. The entity may have made a provision for a
contingent liability as at the reporting date, which will now be adjusted for the
actual amount.
  Measurement of a more accurate amount of bad and doubtful debts when the
debtor goes into bankruptcy after reporting date. At the reporting date, the
entity will have made an estimate of specific or general provision for bad and
doubtful debts.
 Sale of inventory after the reporting date. This provides additional support for
the inventory’s net realisable value as of the balance sheet date.
Furthermore, non-adjusting events after the reporting date. For non-adjusting
events, no adjustment are made to the amounts recognised in the financial
statements. However, disclosures that include the following information should be
provided:
 The nature of the event
 The estimate of the financial effect, or a statement that such an estimate
cannot be made
There are examples of non-adjusting events:
 A major business combination or disposal of a major subsidiary after the
reporting period.
 Announcing a plan to discontinue an operation.
 Major purchases and disposal of assets or expropriation of major assets by
government.
 The destruction of a major production plant by a fire after the reporting
period.
 Announcing, or commencing the implementation of, a major restricting.
 Major ordinary share transactions and potential ordinary share transaction
after the reporting period.
Besides that, after the balance sheet date, dividends paid to equity instrument
holders shouldn’t be recorded as a liability. This is because the dividends do not
meet the criteria of a present obligation in MFRS 137 Provision, Contingent Liabilities
and Contingent Asset. These dividends should be disclosed in the notes to the
financial statements in accordance with MFRS 101 Presentation of Financial
Statements.

Next, going concern where the 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, then the going concern assumption have been used in
preparing the financial statements may no longer be appropriate.

Lastly, additional disclosures that were mentioned the Standard requires an entity to
provide disclosures on the following such as:
 The date and the person who authorised the release of the financial
statements. The company must declare if its owners or other stakeholders
have the authority to change the financial statements after they have been
issued.
 The analysis of information about the conditions that existed at the balance
sheet date following that date. Even if this information has no impact on the
amounts recorded in the financial statement, it must be declared. For
instance, a business can get brand-new knowledge about its existing
contingent liabilities after the balance sheet date. To reflect the new
information, the organisation will revise its disclosures concerning the
contingent liabilities.