Presentation

of the
Philippine Public Sector
Accounting Standards
(PPSAS)

1
 PPSAS 3 - Accounting Policies,
Changes in Accounting Estimates
and Errors

2
 OBJECTIVES

Given lectures, handouts and exercises, at the of

the session, the participants will be able to identify
accounting treatment and disclosure requirement
for changes in accounting policy, change in
accounting estimates and errors in accordance
with the provisions of PPSAS 3

IPSAS 3 - Accounting Policies, Changes in

Accounting Estimates and Errors
 3 Types of Accounting Changes

1. Changes in accounting policy

2. Changes in accounting estimates
3. Correction of errors

PPSAS 9 —
Revenue from Exchange Transactions 4
 Accounting Policy

Accounting policies – are the specific

principles, bases, conventions, rules, and
practices applied by an entity in preparing
and presenting financial statements.

PPSAS 9 —
Revenue from Exchange Transactions 5
 Changes in Accounting Estimates

Changes in Accounting Estimates are

adjustment to carrying amount of an
asset/liability, or amount of the periodic
consumption of an asset, that results from
assessment of the present status of and the
expected future benefits/ obligations
associated with it.

IPSAS 3 - Accounting Policies, Changes in

Accounting Estimates and Errors 6
 Errors

ERRORS – can arise in respect of recognition,

measurement, presentation, or disclosure of
elements of financial statements.

IPSAS 3 - Accounting Policies, Changes in

Accounting Estimates and Errors 22-7
 ACCOUNTING FOR CHANGES

Retrospective Application
• Change in Accounting Policy
• Errors

IPSAS 3 - Accounting Policies, Changes in

Accounting Estimates and Errors 8
 Reporting
Changes in Accounting Policy
– Retrospective application
adjust the opening balance of each
affected component of net asset/equity for the
earliest period presented , and the other
comparative amounts disclosed for each prior
period presented

IPSAS 3 - Accounting Policies, Changes in

Accounting Estimates and Errors 22-9
 Limitation on Retrospective application
 When it is impracticable to determine the
period-specific effects of changing an
accounting policy on comparative information,
(a) apply the new accounting policy to the
carrying amounts of assets and liabilities at
the current period (b) make a corresponding
adjustment to the opening balance of each
affected accounts.

IPSAS 3 - Accounting Policies, Changes in

Accounting Estimates and Errors 22-10
 before retroactive change after retroactive change

Statement of Financial Position Statement of Financial Position

as at 31 December 20X2 as at 31 December 20X2

2013 2012 2013 2012

Current Assets Current Assets

Cash and Bank 6 4 Cash and Bank 6 4

Short Term Short Term

5 8 5 8
Investments Investments

Inventory 10 12 Inventory 12 13

21 24 23 25

2013 2012 2011

Inventory 12 13 10
11
 ACCOUNTING FOR CHANGES

• Change in Accounting Estimate -

Prospective
Application

IPSAS 3 - Accounting Policies, Changes in

Accounting Estimates and Errors 12
Reporting Change in Accounting
Estimates

• Shall be recognized prospectively by

including it in surplus or deficit in:
a. the period of the change, if the
change affects the period only
b. the period of the change and future
period, if the change affects both.

IPSAS 3 - Accounting Policies, Changes in

Accounting Estimates and Errors 22-13
 Disclosure Requirements

Changes in Accounting Policies

• Upon initial application of PPSAS and the change in accounting
policy (a) has an effect on the current period or any prior period,
(b) would have such an effect, except that it is impracticable to
determine the amount of the adjustment, or ( c) might have an
effect on the future periods:
a. the title of the standard;
b. the nature of change in accounting policy
c. The amount of adjustment relating to periods before
those presented, to the extent practicable

IPSAS 3 - Accounting Policies, Changes in

Accounting Estimates and Errors 14
 Disclosure Requirements

Changes in Accounting Policies

• When a voluntary change in accounting policy (a) has an effect
on the current period or any prior period,(b) would have such an
effect, except that it is impracticable to determine the amount of
the adjustment, or ( c) might have an effect on the future
periods:
a. the reasons why applying the new accounting policy
provides reliable and more relevant information;
b. the nature of change in accounting policy
c. The amount of adjustment relating to periods before
those presented, to the extent practicable

IPSAS 3 - Accounting Policies, Changes in

Accounting Estimates and Errors 15
 Disclosure Requirements

Changes in Accounting Estimates

– Nature of the change

– Amount of the change, unless the effect on
future periods is impracticable to estimate
– If impracticable to estimate, disclose the fact

IPSAS 3 - Accounting Policies, Changes in

Accounting Estimates and Errors 16
 Illustrative Example:

The following information regarding the depreciable assets is available:

Carrying amount at the beginning of the 2013 financial period 80,000
Original cost price (purchased beginning of 2011) 100,000
Depreciation per year 10,000

Depreciation for 2013 period based on 5 years’ remaining useful 16,000

life (80,000 / 5)
Carrying amount at the end of 2013 64,000
Depreciation for future periods 16,000
Extract from Notes to the Financial Statements
Change in accounting estimate
Depreciable assets’ original remaining useful life of 8 years has been changed to 5 years in the beginning
of the current period to reflect the actual pattern of service potential derived from the assets.
The effect on the current and future periods will be an increase in the depreciation charge of P6,000 in the
current period and an equal decrease in the depreciation charge of P6,000 over the next 4 periods.

IPSAS 3 - Accounting Policies, Changes in

Accounting Estimates and Errors 17
 Disclosure Requirements

Correction of Error
– Nature of the prior period error
– Amount of the correction for each financial
statement line item affected
– Amount of the correction at the beginning of the
earliest prior period presented; and
– If retrospective restatement is impracticable to
apply, explain how applied and date from when
error is corrected

IPSAS 3 - Accounting Policies, Changes in

Accounting Estimates and Errors 18
 ILLUSTRATIVE EXAMPLE

• A public entity discovered in 2013 that the

revenue recognised in the prior period has
been incorrectly calculated and recognised.
An amount of P6,200,000 was not recognised
as revenue due to an error in the calculation.
• The entity’s accounting records before
adjustment of the error for 2012 and 2013 are
as follows:

IPSAS 3 - Accounting Policies, Changes in

Accounting Estimates and Errors 19
 Illustrative Example:

Extract from statement of Financial Performance

before adjustment restated

2013 2012 2013 2012
Revenue 50,000,000 40,500,000 Revenue 50,000,000 40,500,000
Other Operating 20,100,000 18,000,000 Other Operating 20,100,000 18,000,000
Revenue Revenue
Total Revenue 70,100,000 58,500,000 Total Revenue 70,100,000 64,700,000
Expenses (55,000,000) (45,000,000) Expenses (55,000,000) (45,000,000)
Surplus 15,100,000 13,500,000 Surplus 15,100,000 19,700,000

IPSAS 3 - Accounting Policies, Changes in

Accounting Estimates and Errors 20
 Illustrative Example:
Extract from Statement of Changes in Net Assets/Equity

before adjustment

2013 2012
Opening accumulated surpluses 103,500,000 90,000,000
Surplus for the period 15,100,000 13,500,000
Closing accumulated surplus 118,600,000 103,500,000

restated

2013 2012
Opening accumulated surpluses as previously reported 103,500,000 90,000,000

Correction of error 6,200,000 -

Opening accumulated surpluses as restated 109,700,000 90,000,000
Surplus for the period 15,100,000 19,700,000

Closing accumulated surplus 124,800,000 109,700,000

IPSAS 3 - Accounting Policies, Changes in
Accounting Estimates and Errors 21
 Illustrative Example:

Extract from Notes to the Financial Statements

Errors
During the 2013 financial period the entity’s management realized that property rates
amounting to P6,200,000 was not recognised in 2012 in the statement of financial
performance due to a calculation error. The prior period was adjusted retrospectively.

The effect of the error on the individual line items in the financial statements is as follows:

2013 2001
Increase in Revenue - 6,200,000
Increase in Surplus for the period - 6,200,000

IPSAS 3 - Accounting Policies, Changes in

Accounting Estimates and Errors 22
 EFFECTIVITY

An entity shall apply this PPSAS for

annual financial statements covering
periods beginning on January 1,
2014.

IPSAS 3 - Accounting Policies, Changes in

Accounting Estimates and Errors
IPSAS 3 - Accounting Policies, Changes in
Accounting Estimates and Errors 24