IAS 8-Reporting and Disclosure

IAS 8- ACCOUNTING POLICIES, ACCOUNTING
ESTIMATES,ERRORS
Aim of the Presentation
At the end of this session participants are expected to
be able to:
 Select accounting policies
 Change accounting policies
 Change accounting estimates
 Apply effects of changes in accounting policies
and estimates in financial statements
 Correct errors in financial statements
 Disclose the information as per requirements
of IAS 8
 Other disclosures
12/06/23 IAS 8- Reporting and Disclosures- 2

Applicable Standards
IAS 8
Accounting Policies, Changes

in Accounting Estimates and
Errors

Relevance of standard
 Organizations are dynamic and change

over time.
 Financial data and procedures may need to
be revised to current practices or to
reflect existing economic condition.
 The objective of this standard is to provide

guidance on how those policies should be
established and their treatments when
they need to be modified,

Relevance of the standard cont`d
 as well as the treatment of accounting

errors, and
 Revisions of estimates should be

reflected in the financial statements.

Objective of IAS 8
 This standard Prescribes the criteria
for:
 Selection and application of accounting
policies
 Changes in accounting policies
 Changes in accounting estimates
 accounting treatment and disclosure of
changes in accounting policies;
 changes in accounting estimates; And
 correction of errors
Objective of IAS 8 cont`d
 The achievement of the
objective would result in:
 Enhancement of:
 Relevance and reliability of
financial statements;
 Comparability of financial
statements with the financial
statements of other entities;

Accounting Policies
(What are accounting policies?)
 Are specific principles, bases,

conventions, rules and practices;
 adopted by an entity in preparing and
presenting financial statements.
 Management should select and apply an

entity’s accounting policies from IFRS
standards.

Selection and Application
of Accounting Policies
 When an IFRS specifically applies to a
transaction, other event or condition,
 the accounting policy or policies applied to
that item shall be determined by
applying the Standard.
 and considering any relevant

implementation Guidance issued by
the IASB for the Standard.

In the absence of an
IFRS…
 Sometimes the standards do not have
clear guidance.
 management shall use its judgment in

developing and applying an accounting
policy that results in information that is:
(a)Relevant to the decision-making needs of
users; and
(b) Reliable, in that the financial statements

How to make Judgment
 management shall refer to, and consider
the applicability of, the following sources in
descending order:
(a) The requirements and guidance in IFRS
dealing with similar and related issues;
(b) The definitions, recognition and
measurement criteria for assets, liabilities,
revenue and expenses described in other
standards; and
(c) Pronouncements of other standard setting
bodies and accepted as best practices.

Characteristics of an
Accounting policy
 In devising an accounting policy, it

should be:
Ø relevant; reliable; and faithful;
Ø having economic substance;
Ø neutral; prudent; complete;

Accounting policy cont`d
 Relevant to the economic decision making
needs of user; and
 Reliable in that the financial statements:
 Represents faithfully the financial position,
financial performance and cash flows of
the entity;
 Reflect the economic substance of
transactions, other events and conditions,
and not merely legal form;
 Are prudent; and Are complete in all
material respects.

Accounting policy cont`d
 CONSISTENCY
 An entity shall select and apply its
accounting policies consistently for
similar transactions, other events and
conditions,
 unless an IFRS specifically requires or

permits categorization of items for
which different policies may be
appropriate
Example an IAS
Accounting policy for inventory
(IAS 2)
 Inventories are carried at the lower of

net realizable value or cost.
 Cost comprises all costs of

purchase, costs of conversion and
other costs incurred in bringing the
inventories to their present location and
condition.

WHAT IS YOUR EXPERIENCE
WITH REGARD TO ACC
POLICIES?

CONFUSED?
I guess you are still fine!

RETROSPECTIVE APPLICATION
OF ACC. POLICY
 Retrospective application is
applying a new accounting policy
to transactions, other events and
conditions,
 as if that policy had always

been applied.

RETROSPECTIVE
RESTATEMENT OF ACC.POLICY
 Retrospective restatement is
correcting the recognition,
measurement and disclosure of
amounts of elements of financial
statements
 as if a prior period error had
never occurred.

PROSPECTIVE APPLICATION
OF ACC. POLICY
 Prospective application of a change in
accounting policy and of recognizing the
effect of a change in an accounting
estimate, respectively, are:
 Applying the new accounting policy to
transactions, other events and conditions
occurring after the date as at which the
policy is changed; and.
 Recognizing the effect of the change in the
accounting estimate in the current and
future periods affected by the change.

IMPRACTICABLE?
 Applying a requirement is
impracticable when the entity
cannot apply it after making every
possible effort……………………….

CHANGES
IN ACCOUNTING POLICY

Changes in accounting policies
 An entity shall change an accounting

policy only if the change:
(a) Is required by an IFRS (setting body); or
(b) By statute
(c) Results in the financial statements

providing reliable and more relevant
information;
 about the effects of transactions; other
events and conditions
 on the entity’s financial position,
financial performance or cash flows
Example of Changes in
Accounting Policies
 A change from one basis of accounting

to another basis of accounting
 A change in the accounting treatment,

recognition or measurement of a
transaction, event or condition within a
basis of accounting.

Not Changes in Accounting
Policies
 The application of an accounting policy
for transactions, other events or
conditions;
 that differ in substance from those
previously occurring; and
 The application of a new accounting
policy for transactions, other events
or conditions;
 that did not occur previously or that
were immaterial.

Generally a change in
accounting policy occur
 If there has been a change in-
 recognition, e.g. expenses is now
recognized rather than asset.
 Presentation, e.g. depreciation is now
included in cost of sales rather than
administrative expenses, or
 measurement basis, stating assets at
replacement cost rather than historical
cost.

Just a minute!
 Which of the following are changes
in accounting policy?:
1. An entity has previously charged interest
incurred in connection with construction
of tangible NCA to the income statement
following the revision of IAS 23
(Borrowing costs) and as per
requirements of that standard, it now
capitalizes that interest.

2. An entity previously depreciated
vehicles using the reducing balance
method at 40% p.a. It now uses
straight line method over a period
of five years.

3.An entity has previously shown
certain overhead within cost of
sales. It now shows those
overheads within administrative
expenses.

4. An entity has previously measured
inventory at weighted average cost
(WAM). It now measure inventory
using FIFO method.

CAN YOU TRY?

Well- answers to Qns-
 For all items, ask whether this

involve a change to, recognition,
presentation and measurement basis.
 If an answer to any is YES, then it

is a change in accounting policy;
 ELSE NO

HENCE,….
1.This is change in recognition and
presentation ◊ Change in acc policy.
2.The answer to all 3 questions is No. ◊ it is a
change in estimation not in acc, policy.
3. This is a change in presentation ◊
Change in accounting policy.
4. This is a change in a measurement basis
◊ change in accounting policy.

Accounting treatment of
changes in Acc. Policies
 Changes an accounting policy

should be applied
retrospectively

Retrospective Application
 When a change in accounting policy is
applied, the entity shall adjust the
opening balance of each affected
component of net assets/equity for the
earliest period presented
 and the other comparative amounts

disclosed for each prior period presented as
if the new accounting policy had always
been applied.

Limitations on
Retrospective Application
 A change in accounting policy shall be

applied retrospectively except to the
extent that it is impracticable to
determine
 either the period specific effects
 or the cumulative effect of the change.

What therefore?.....
 When it is impracticable to determine the period
specific effects for one or more prior periods, then
 The entity shall apply the new accounting policy as at
the beginning of earliest period for which retrospective
application is practicable and shall make a
corresponding adjustment to the opening balance of
each affected component of equity for that period.
 When it is impracticable to determine the
cumulative effect, then
 the entity shall adjust the comparative information to
apply the new accounting policy prospectively from
the earliest date practicable.

Disclosure requirements
for changes in accounting policy
in accordance with an IFRS
 Title of the IFRS

 If change made in accordance with transitional
provisions, the fact thereof
 The nature and reason of the change in accounting
policy.
 Amount of adjustment for all period presented for
each line item and EPS.
 Amount of adjustment for period not presented,
unless impracticable
 The circumstances due to which retrospective
application is impracticable

for changes in acc. Policy as a
result of a voluntary change
 The nature and reason of the change in accounting

policy.
 Reasons why new policy gives more relevant and
reliable information.
 Amount of adjustment for all period presented for
each line item and EPS.
 Amount of adjustment for period not presented,
unless impracticable
 The circumstances due to which retrospective
application is impracticable

Until when does disclosure
required?
 Financial statements of
subsequent periods need not
repeat these disclosures.

IFRS not yet Effective
Disclose
(a)The title of the new IFRS;
(b)The nature of the impending change or
changes in accounting policy;
(c)The date by which application of the
Standard is required;
(d)The date as at which the entity plans to
apply the Standard initially.

Example of a retrospective change in
accounting policy with complete disclosure
 G ltd adopted IFRSs from the beginning of year 2012. as a
consequence, G ltd changed its accounting policy for the
treatment of borrowing costs that are directly attributable
to the acquisition of a hydroelectric power station under
construction for use by G Ltd. In previous periods, G Ltd
had charged such cost as an expense. G Ltd has now
decided to capitalize these costs, rather than treating
them as an expense as a result of adopting IAS 23.
 G Ltd expensed borrowing costs directly related to
construction of qualifying asset incurred TZS 2,600,000
during 2011 and TZS 5,000,000 in 2010 and TZS
4,000,000 in 2009. G limited accounting records for 2012
show profit before tax of TZS 27,000,000 (after deducting
TZS 3,000,000 borrowing costs relating to qualifying
assets).

Cont’d
 The income tax is TZS 8,100,000. G Ltd has not yet
recognised any depreciation on the power station because it
is not yet in use.
 In 2011, G Ltd reported: TZS
• Profit before interest and tax 20,600,000
• Interest expenses (all on qualifying asset) (2,600,000)
• Profit before tax 18,000,000
• Tax (5,400,000)
• Profit 12,600,000
 Year 2011 required opening retained earnings was TZS
20,000,000 and closing retained earnings was TZS
32,600,000. G ltd tax rate was 30% for 2012, 2011 and prior
periods. G ltd had TZS 10,000,000 of share capital
throughout, and no other components of equity except for
retained earnings.
 Required: Relevant extracts of financial statements with
disclosure notes
Answer
Extracts from the notes
During 2012, G Ltd changed its accounting policy for the
treatment of borrowing cost related to hydroelectric power
station under construction for use by G Ltd. Previously G Ltd
expensed such cost as incurred. They are now capitalised in
the cost of asset concerned. The change of policy is for better
presentation and comparison with local industry and for
complying with requirement of IAS 23. This change in
accounting policy has been accounted for retrospectively, and
the comparative statements for 2011 have been restated.

WHAT ELSE?....
CHANGES IN ACCOUNTING
ESTIMATES

Changes in Accounting
Estimates
 As a result of the uncertainties inherent in
delivering services, conducting trading or
other activities,
 many items in financial statements cannot
be measured with precision but can only
be estimated.
 Estimation involves judgments based on

the latest available, reliable information.

Estimates Cont`d…
 Change in accounting estimate is an

adjustment of the carrying amount of
an asset or liability,
 or the amount of the periodic

consumption of an asset
 that results from the assessment of the
present status of and expected future
benefits and obligations associated with
assets and liabilities.

Estimates (IPSAS3)
 Changes in accounting estimates resulting

from new information or new
developments
 accordingly, are not correction of

errors.

When change in accounting
estimate becomes necessary
 If changes occur in the circumstances

on which the estimate was based; or
 As a result of a new information; or
 More experience

Examples of accounting
estimates
 Estimates may be required of:
 Tax revenue due to government
 Bad debts;
 Inventory obsolescence;
 Fair value of financial assets or financial
liabilities;
 The useful lives of, or expected pattern of
consumption of the future economic benefits
embodied in, depreciable assets; and
 Warranty obligation
 Residual value of non current assets etc

Changing Accounting
Estimates
 Shall be recognized prospectively by

including it in income statement in:
(a)The period of the change, if the change

affects the period only; or
(b) The period of the change and future

periods, if the change affects
both.

Accounting treatment of the
changes
 recognized by adjusting the carrying

amount of the related asset, liability or
net assets/equity item in the period of
change.
 For all other items the effect of a change
in accounting estimate, shall be
recognized prospectively.

Accounting treatment of the
changes
 Adjusting the carrying amount of the related
asset, liability or equity item in the period of
change recognizes a change in an
accounting estimate.
 Example: Management estimates that provision
for doubtful debts is estimated up to 5 percent of
the total population of trade debts. However,
upon identifying the age of the trade debts, it
revealed that bad debts are about 6.5 percent.
 Management immediately recognizes the
increase in bad debts expense in the books
of accounts.

Example of a change in accounting
estimate
 XYZ Textile Limited purchased a plant on January
01, 2011 for TZS 1,120,000,000. At this date the
useful of the asset was estimated at 10 years after
which it can be sold for TZS 120,000,000. However,
during 2013 XYZ estimates the remaining useful life
of this plant as 6 years and expects to fetch residual
value of TZS 170,000,000. XYZ uses straight line
method for depreciating such plants.
 Required: Calculate the amount of depreciation from
year 2011 to 2018.

Disclosure Requirements Of
Change In Accounting Estimate
 Nature and amount of a change in an

accounting estimate for the current year
and future period if practicable;
 If estimation is impracticable,
disclosure of this fact;

ERRORS

Errors
 Errors can arise in respect of the
recognition, measurement, presentation or
disclosure of elements of financial
statements.
 Financial statements do not comply with
IFRS 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.

Current Period Errors
 Potential current period errors

discovered in that period are
corrected before the financial
statements are authorized for issue.

Prior Period Errors
 Prior period errors are omissions from, and

misstatements in, the entity's financial
statements for one or more prior periods
 arising from a failure to use, or misuse of, reliable
information that:
(a) was available when the financial statements for
those periods were authorized for issue; and
(b) Could reasonably be expected to have been
obtained and taken into account in the
preparation and presentation of those financial
statements.

The errors may arise from
 Mathematical mistakes
 Mistakes in applying accounting policies
 Oversights
 Misinterpretation of facts
 Fraud?

Correction of Prior Period
Errors
 an entity shall correct material prior period
errors retrospectively in the first set of
financial statements authorized for
issue after their discovery by:
(a)Restating the comparative amounts for
prior period(s) presented in which the error
occurred; or
(b)If the error occurred before the earliest
prior period presented, restating the
opening balances of assets, liabilities
and net assets /equity for the earliest
prior period presented

Accounting treatment
(a) Restate comparative amounts for each prior

period presented in which the error occurred;
(b) If the error occurred before the earliest prior

period presented restate the opening
balances of assets, liabilities and equity for
the earliest prior period presented; and
(c) Include any adjustment to opening equity as

the second line of the statement of changes
in equity.

When impracticable….
 If it impracticable to determine the period

specific effects or the cumulative effect of
the error,
 the entity corrects the error from the

earliest period/date practicable
 (and discloses that fact).

Limitations of
Retrospective Restatement
 A prior period error shall be corrected by

retrospective restatement except to the
extent that it is impracticable
 to determine either the period specific
effects or the cumulative effect of the error.
 The correction of a prior period error is

excluded from income statement for the
period in which the error is discovered

Limitation On Retrospective
Restatement ( what to do?)
 Limitation on period specific effect

 When it is impracticable to determine the
period specific effects of an error on
comparative information for one or more
prior periods presented,
 the entity shall restate the opening
balances of assets, liabilities and equity for
the earliest period for which retrospective
restatement is practicable (which may be
the current period).

Limitation On Retrospective
Restatement
( what to do?) cont`d
 Limitation on cumulative effect
 When it is impracticable to determine the
cumulative effect,
 at the beginning of the current period, of
an error on all prior periods,
 the entity shall restate the comparative

information to correct the error
prospectively form the earliest date
practicable.

Prior Period Errors
 The nature of the prior period error;
 To the extent practicable, the amount of

the correction:
 For each financial statement line item
affected; and
 Revision in earnings per share (EPS)
 The amount of the correction at the
beginning of the earliest prior period
presented; and

Prior Period Errors cont`d
 If retrospective restatement is
impracticable for a particular prior
period;
 the circumstances that led to the

existence of that condition and
 a description of how and from when the
error has been corrected.

Wait!
Should the disclosure continue?..
~NO~
Do not repeat such disclosures in
subsequent financial statements.

EFFECTIVE DATE OF THE
STANDARD
 This standard has been applicable

from annual periods beginning on
or after 1 January 2005.

Still fine?
Any questions?
Any point worth sharing?

Conclusion-
 Accounting Policies, Accounting

Estimates, Errors;
 can materially affect the true and fair
view of the entity’s financial position,
financial performance and cash flows.

Conclusion-
 Accountant should ensure that all

figures on the face of the Statement of
Financial Position as well as in the
Statement of Financial Performance
 are supported by Accounting Policies.
 This is also Auditors` point of interest.

Case questions
Refer to training manual on IAS 8

Conclussion-3
Thank you for listening
ASANTE SANA
CHEERS..

The End
IAS 8- Reporting and

12/06/23 Disclosures- 76

IAS 8-Reporting and Disclosure

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IAS 8- ACCOUNTING POLICIES, ACCOUNTING

12/06/23 IAS 8- Reporting and Disclosures- 2

Accounting Policies, Changes

12/06/23 IAS 8- Reporting and Disclosures- 3

 Organizations are dynamic and change

 The objective of this standard is to provide

12/06/23 IAS 8- Reporting and Disclosures- 4

 as well as the treatment of accounting

 Revisions of estimates should be

12/06/23 IAS 8- Reporting and Disclosures- 5

12/06/23 IAS 8- Reporting and Disclosures- 7

 Are specific principles, bases,

 Management should select and apply an

12/06/23 IAS 8- Reporting and Disclosures- 8

 and considering any relevant

12/06/23 IAS 8- Reporting and Disclosures- 9

 management shall use its judgment in

12/06/23 IAS 8- Reporting and Disclosures- 10

12/06/23 IAS 8- Reporting and Disclosures- 11

 In devising an accounting policy, it

Ø having economic substance;

Ø neutral; prudent; complete;

12/06/23 IAS 8- Reporting and Disclosures- 12

12/06/23 IAS 8- Reporting and Disclosures- 13

 unless an IFRS specifically requires or

 Inventories are carried at the lower of

 Cost comprises all costs of

12/06/23 IAS 8- Reporting and Disclosures- 15

12/06/23 IAS 8- Reporting and Disclosures- 16

I guess you are still fine!

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 as if that policy had always

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 An entity shall change an accounting

(c) Results in the financial statements

 A change from one basis of accounting

 A change in the accounting treatment,

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 For all items, ask whether this

 If an answer to any is YES, then it

12/06/23 IAS 8- Reporting and Disclosures- 32

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 Changes an accounting policy

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 and the other comparative amounts

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 A change in accounting policy shall be

 either the period specific effects

 or the cumulative effect of the change.

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 Title of the IFRS