CONCEPTUAL FRAMEWORK

AND
ACCOUNTING STANDARDS
ACCTG 016

MODULE 8
PAS 8
ACCOUNTING POLICIES,CHANGES IN
ACCOUNTING ESTIMATES AND ERRORS
 Intended Learning Outcomes
At the end of the session, the students should be able
to:
 Define and describe the accounting treatment
for:
 Change in accounting policy
 Change in accounting estimate
 Correction of prior period errors
 ACCOUNTING POLICIES
-Specific principles, bases, conventions ,
rules and practices applied by an entity in
preparing and presenting the financial
statements.
- In the selection and application of
accounting policies, the entity shall refer to
the hierarchy guidance on reporting
standards:
1) PFRS
2) Judgement –requirements in other PFRS
-Conceptual Framework
 The entity shall apply the same
accounting policies each period
1. to achieve comparability of financial
statements or
2. Identify trends in the financial position,
performance and cash flow of an entity
 A change in accounting policy shall be
made only when
1. Required by the accounting standard
2. Change will result in a more relevant and
faithfully represented information
 A change in accounting policy arises when
an entity adopts a GAAP which is different
from the one previously used by the entity.

 Involuntary Change in accounting policy –

If it is required by the IFRS

 Voluntary Change in accounting policy –

If management assesses that the FS will
be more relevant to the user
 CHANGES IN ACCOUNTING POLICIES
- Change in measurement basis
 Change in Cost formula for Inventories
 Change from Cost Model to fair value model of
measuring investment property
 Change from Cost Model to Revaluation model
of measuring PPE and Intangible Assets
 Change in business model for classifying assets
 Change in revenue recognition methods from
long term to construction contracts
 Change to a new policy resulting from the
requirement of a new PFRS
 Change in Financial reporting Framework
 Reporting a Change in
Accounting Policy

1)Change shall be applied in accordance

with transitional provisions
2) If no transitional provisions (change is
voluntary), change shall be applied
 Retrospectively – effect of adjustment is on
the Beg. balance of Retained Earnings

- amount of adjustment is
determined on the year of change
- if comparative information is
presented, FS of prior period is restated
 Retrospectiveapplication
-applying a new accounting policy as if
the policy had always been applied
 In the absence of a standard that specifically
applies to a transaction or event, judgement
shall be used in selecting an accounting policy
that results to a more relevant and faithfully
represented information.

 Hierarchy of guidance in selecting policies:

1. Requirement of current standards
2. Definition,recognition criteria and
measurement concepts for Assets, Liabilities
and expenses in the CFW
3. More recent pronouncements of other
standard setting bodies
 CHANGE IN ACCOUNTING ESTIMATE

Normal recurring correction or adjustment

of an asset or liability (use of estimate)
Examples:
 Doubtful accounts
 Inventory obsolecense
 Useful life, residual value, expected pattern
of consumption of benefit of depreciable
asset
 Warranty cost
 Fair value of asset and liability
 CHANGE IN ACCOUNTING ESTIMATE

Effect of change shall be recognized

currently and prospectively by including it
in the income or loss of:
 Period of change
 Period of change and future periods if the
change affects both
 if it is difficult to distinguish a change in
accounting policy and a change in
accounting estimate, change is treated as
a change in acctg estimate with
disclosures
 ERRORS
 -includes misapplication of accounting
policies, mathematical mistakes,
oversight or misinterpretations of facts,
and fraud.
1. Material errors- cause the FS to be misstated
2. Intentional errors – fraud ( does not matter if
error is material or immaterial
3. Error of commission- mistake
4. Error of omission – failure to correct the
mistake.
5. Errors according to period of occurrence-
current and prior
 PRIOR PERIOD ERRORS
-omissions or misstatement in the FS for
one or more periods arising from a failure
to use or misuse of reliable information.
 Results from
 a mathematical error,
 Mistake in applying an accounting policy
 Misinterpretation of facts, fraud, oversight


 PRIOR PERIOD ERRORS
 Errors shall be corrected retrospectively,
or on the beg. balance of RE and
affected assets and liabilities.
 If comparative statement are presented,
FS of prior periods shall be restated, to
reflect the retroactive application of the
prior period errors as retrospective
restatement
 If impracticable , correction can be made
prospectively from the earliest date
possible.
 CURRENT PERIOD ERRORS
-errors in the current period that were
discovered during the accounting period or
after the accounting period but before the
authorized issuance of the FS
-simply corrected by correcting entries.
 Thank You
and Good Day !

FERLIN G. GATAN, CPA, MBA