CFAS CHAPTERS 11-13
CHAPTER 11: PAS 8 Accounting Policies, Changes
in Accounting Estimates and Errors
Accounting Policies
These are the specific principles, bases,
conventions, rules and practices applied by an
entity in preparing and presenting financial
statements
o Dito nagbabase kung anong
accounting standards gagamitin ng
isang entity sa pagpresent ng
financial statements
When selecting and applying accounting
policies, and entity shall refer to the hierarchy
guidance summarized below:
Changes in Accounting Policies
PAS 8 requires the consistent selection and
application of accounting policies
PAS 8 permits a change in accounting policy
only if the change:
Is required by a PFRS; or
Results in reliable and more relevant
information
Examples of Changes in Accounting Policies
Accounting for changes in accounting policy
Changes in Accounting Policies are
accounted for using the following order of priority
Transitional Provision in PFRS, if any
o If a new standard is being
introduced by the IASB, usually
meron silang transitional provisions
o Meaning, meron silang rules on how
you will account the change in
accounting policy because of a new
standard
o Example: PFRS 16, when it was first
introduced, there are actually two
ways on how you will account or
adapt the new PFRS (1. Modified
Retrospective Approach, 2. Full
Retrospective Approach). So si
company na bahala magdecide alin
don
Retrospective Application, in the Absence of
Transitional Provision
o Pag no transitional provision, then
the new standard will be recorded
retrospectively
Prospective Application, if Retrospective
Application is impracticable
o If hindi pwede yung retrospective
application
o This is the last resort na
o Ginawa na lahat pero di pa rin kaya
o Bihira lang magrelease ng standard
na walang transitional provision
Impracticable means it cannot be done
after making every reasonable effort to do so
Retrospective Application
Means adjusting the opening balance of
each affected component of equity (e.g retained
earnings) for the earliest prior period presented
and the other comparative amounts disclosed for
each prior period presented as if the new
accounting policy has always been applied
A voluntary change in accounting policy is
accounted for by retrospective application. An
early application of a PFRS is not a voluntary
change in accounting policy
o Malalaman mo nalang yung exact
net realizable value ng inventories
mo pag naibenta mo na siya
o So, it would actually requires
estimation
Example:

Changes in Accounting Estimate

Many items in the financial statements
cannot be measured with precision but only
through estimation because of uncertainties
inherent in business activities
The use of reasonable estimates therefore
is necessary in order to provide relevant
information
Estimates are an essential part of financial
reporting and do not undermine the reliability of
financial reports
For example, the following requires
estimation:
Net Realizable Value of Inventories
 Depreciation Changes in accounting estimate result from
new information or new developments and,
Example:
accordingly, are not corrections of errors
If a change is difficult to distinguish
between change in accounting policy and change in
B accounting estimate, the change is treated as a
ad Debts change in accounting estimate
Fair Value of Financial Assets or Financial
o Parang lovelife lang yan, so if you
Liabilities
say retrospective application in
o Based on an active market
accounting policy, umaasa ka pa rin
exchanging that specific good or
na magkakabalikan kayo, meaning,
financial asset of yours
tumitingin ka pa rin sa past. In
o Based lang siya sa estimates
retrospective application, yung
Provisions
previous financial statements mo ay
o Kapag ang company ay undergoing
required mong irestate
o Prospective Application meaning
moved on ka na, so kung tapos na
yung 2019, hindi mo siya babalikan,
meaning hindi mo na siya need
irestate kasi tapos na siya
Example:
Prospective Application – kasi hindi ginalaw yung
2018 and 2019 statements, ginalaw lang niya yung
2020, which is yung current yr
litigation
o Based on the estimate ng lawyer, Depreciation
sabi niya na pag natalo ka, ganitong Bad debts
amount yung need mong bayaran.
Where in reality, yung actual na
binayaran mo is iba sa estimation ng
lawyer mo
Estimates need to be revised when there is
a change in circumstances such that new
information or more experience is obtained
A change in accounting estimate is “an
adjustment of the carrying amount of an asset or a
liability, or the amount of the periodic consumption
of an asset, that results from the assessment of the Provision
present status of, and expected future benefits and
obligations associated with, assets and liabilities

Examples of Changes in Accounting Estimates
Change in depreciation method
o In depreciation, we can adapt the
single line method, double declining,
and sum of the year
Change in estimated useful life or residual
value of a depreciable asset
Change in the required balance of
allowance for uncollectible accounts or
impairment loss
Change in estimated warranty obligations
and other provisions
Accounting for Changes in Accounting Estimates
Changes are accounted for by prospective
application. Prospective Application means
recognizing effects of change in profit or loss,
either in:
The period of change; or
The period of change and future periods, if
both are affected
Under prospective application, the
beginning balance of retained earnings and the
previous financial statements are not restated
Errors
Include misapplication of accounting
policies, mathematical mistakes, oversights or
misinterpretation of facts and fraud
o When you say errors, possible na
yung accountant mo hindi niya
nakita na may mali sa financial
statements or pwedeng intentional
through fraud
o Kapag intentional, fraud na siya
o The difference between error and
fraud is mainly the intention
Financial Statements do not comply with
PFRSs if they contain either material errors or
immaterial errors made intentionally to achieve a
particular presentation of an entity’s financial
position, financial performance or cash flows
o Even if the error is immaterial but it
is due to fraud, financial statements
of the company do not comply with
the GAAP/PFRS
o So the company cannot say na yung
FS nila is in full compliance with the
PFRS if may fraud doon sa FS
Errors can be errors of commission or
omission
Errors of Omission – hindi mo nilagay yung
specific figure doon sa financial statement whereas
dapat mo siyang nilagay or dapat mong inapply
yung isang accounting policy pero hindi mo siya
inapply
Errors of Commission – inilagay or iniba mo
yung figures sa financial statements whereas dapat
hindi naman
Types of Errors According to the Period of
Occurrence
Current Period Errors – are errors in the
current period that were discovered either during
the current period r after the current period but
before the financial statements were authorized
for issue. These are corrected simply by correcting
entries
o Occurring siya in the current year
o Pwede mo pang icorrect even after
the reporting period basta hindi pa
siya naauthorized for issuance
Illustration:

Prior Period Errors – are errors in one or
more prior periods that were only discovered
either during the current period or after the
current period but before the financial statements
were authorized for issue. These are corrected by
Retrospective Restatement
Retrospective Restatement
Restating the comparative amounts for the
prior period(s) presented in which the error
occurred; or
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
Just like retrospective application,
retrospective restatement shall be made as far
back as practicable, if it is impracticable to
determine the cumulative effect of a prior period
error at the beginning of the current period the
entity is allowed to correct the error prospectively
from the earliest date practicable
o You are required to restate your
financial statements as if that
particular error did not occur
o Yung disclosure ng restatement mo
will occur sa statement of changes in
equity sa current period na hindi pa
naauthorized for issuance
CHAPTER 12: PAS 10 EVENTS AFTER THE
REPORTING PERIOD
PAS 10
Prescribes the accounting for, and
disclosures of, events after the reporting period,
including disclosure regarding the date when the
financial statements were authorized for issue
Events after the reporting period
Are those events, favorable and
unfavorable, that occur between the end of the
reporting period and the date when the financial
statements are authorized for issue
The date of authorization of the financial
statements is the date when management
authorizes the financial statements for issue
regardless of whether such authorization is final or
subject to further approval
Illustration:
Two types of Events after the reporting period
Adjusting Events after the reporting period
– are events that provide evidence or conditions
that existed at the end of the reporting period.
They require adjustments of amounts in the
financial statements
o Basically, this would require
adjustment in your financial
statement
Non-Adjusting Events after the Reporting
Period – are events that are indicative of conditions
that arose after the reporting period
o Events that do not require
adjustments in your financial
statements but if they are material,
they are required to be disclosed
into your notes to financial
statements
 Adjusting Events After the Reporting e. The discovery of fraud or errors that
Period indicate that the financial statements are
incorrect
a. The settlement after the reporting period of
a court case that confirms that the entity Non-Adjusting Events after the Reporting period
has a present obligation at the end of the
These events do not require adjustments of
reporting period
amounts in the financial statements. However,
b. The receipt of information after the
they are disclosed if they are material. Examples of
reporting period indicating that an asset
Non-Adjusting Events:
was impaired at the end of the reporting
period. For example:
i. The bankruptcy of a
customer that occurs after
the reporting period may
indicate that the carrying
amount of a trade receivable
at the end of the reporting
period is impaired
ii. The sale of inventories after
the reporting period may
give evidence to their net
realizable value at the end of
reporting period
c. The determination after the reporting
period of the cost of asset purchased, or the
CHAPTER 13: PAS 24 RELATED PARTY
DISCLOSURES
Related parties
Parties are related if one party has the
ability to affect the financial and operating
decisions of the other party through control,
significant influence or joint control
Examples of Related Parties

proceeds from asset sold, before the end of

reporting period
d. The determination after the reporting
period of the amount of profit-sharing or
bonus payments, if the entity had a present
legal or constructive obligation at the end of
the reporting period to make such
payments
Key Management Personnel Definition
Key Management Personnel – are those
persons having authority and responsibility for
planning, directing, and controlling the activities of
the entity, directly or indirectly including any
director (whether executive or otherwise) of that
entity
o CEO, CFO, VP, Board of directors
o Key management personnel sila
because their decisions matter
o Relationship between Key
management personnel and the
entity is actually a related party
o Kasi there are some cases na kapag
hindi key management personnel
yung nag-aask, hindi siya basta basta
nagagrant
Close family Member – is one who may be
expected to influence r be influenced by, the
person in his/her dealings with the reporting entity,
it includes the person’s spouse, their children, and
their dependents
Disclosure
Relationship between parents and
subsidiaries
A parent-subsidiary relationship is disclosed
even if there have been no transactions
between them during that period
A subsidiary discloses the name of its
parent, and if different, the name of the
ultimate parent. If neither of these two
prepares consolidated financial statements
for public use, the subsidiary discloses the
name of the next most senior parent that
does so
Key management personnel compensation
An entity discloses the total key
management personnel compensation as follows
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payment
Related Party Transactions
A related party transaction is a transfer of
resources, services or obligations between a
reporting entity and a related party regardless of
whether a price is charged
The following are disclosed when there are
related party transactions during the periods
covered by the financial statements:
Nature of the related party relationship
Nature, terms and amount of the
transaction and outstanding balances
Doubtful debts recognized on the
outstanding balances
Related party transactions and their
outstanding balances are disclosed in an entity’s
separate or individual financial statements. These,
however, are eliminated in the group’s
consolidated financial statements
o Yung related party transactions are
disclosed only sa individual FS
Disclosures that related party transactions
were on arm’s length basis are not made unless
this can be substantiated
Government-Related Entities
A government-related entity is “an entity
that is controlled, jointly controlled or significantly
influenced by a government”
 A government-related entity discloses the
following if there have been related party
transactions with the government:
Name of the government and the nature of
the relationship
Nature and amount of each individually
significant transaction
Other transactions that are collectively
significant but are individually insignificant