INTERMEDIATE ACCOUNTING ONE
ACCOUNTING POLICIES, CHANGES IN ACOUNTING ESTIMATES AND ERRORS (I A S 8)
- It govern, the following topics:
Selection of accounting policies
Changes in Accounting policies
Changes in Accounting estimates
Correction of Prior Period error
Accounting Policies
- These are the principle, basic conventions, values, and practice applied by an entity
which specify how the effects of transactions and other event are reflected in the
financial statements.
- IAS 8 requires an entity to select and apply appropriate accounting policies complying
with International Financial Reporting Standards (IFRS) and interpretations to ensure
that the financial statements provide information that is:
(a) Relevant to the decision making needs of us
(b) Reliable in that they:
- Represent faithfully the results and financial position of the entity.
- Reflect the economic substance of events and transactions and not
merely the legal form.
- Are natural i.e. free from bias
- Are prudent
- Are complete in al material response
Changing Accounting Policies
- The general value is that accounting policies are normally kept the same
from period to period to ensure comparability of financial statements
over time.
- IFRS various accounting policies to be changed only if the change:
(a) Required by IFRS, or
(b) Will results in available and more relevant presentation of events or
transactions
A change in accounting policy occurs if there has been a change in:
1. Recognition e.g. an expense is now recognized rather than an asset
2. Presentation e.g. depreciation is now included in cost of sales rather than
administration expenses or
3. Measurement basis e.g. stating assets at replacement cost rather than historical cost.
Accounting for a change in accounting policy.
The required accounting treatment is that:
The change should be applied retrospectively, with an adjustment to the opening balance of
retained earnings in the statement of changes in equity.
1. Comparative information should be restated unless it is impracticable to do so.
CPA. Dr. Fred Sporta; KCAU 1
, 2. If the adjustment to opening retained earnings cannot be reasonably determined, the
change should be adjusted prospectively i.e. included in the current periods income
statement.
Disclosures relating to changes in accounting policies
When a change in accounting policy has a material effect on the current period or any prior
period presented or may have a material effect in subsequent periods, the following
disclosures should be made:
Disclosures relating to changes in accounting policy caused by a new standard or
interpretation include: [IAS 8.28]
the title of the standard or interpretation causing the change
the nature of the change in accounting policy
a description of the transitional provisions, including those that might have an effect
on future periods
for the current period and each prior period presented, to the extent practicable, the
amount of the adjustment:
o for each financial statement line item affected, and
o for basic and diluted earnings per share (only if the entity is applying IAS 33)
the amount of the adjustment relating to periods before those presented, to the
extent practicable
if retrospective application is impracticable, an explanation and description of how the
change in accounting policy was applied.
Financial statements of subsequent periods need not repeat these disclosures.
Disclosures relating to voluntary changes in accounting policy include: [IAS 8.29]
the nature of the change in accounting policy
the reasons why applying the new accounting policy provides reliable and more
relevant information
for the current period and each prior period presented, to the extent practicable, the
amount of the adjustment:
o for each financial statement line item affected, and
o for basic and diluted earnings per share (only if the entity is applying IAS 33)
the amount of the adjustment relating to periods before those presented, to the
extent practicable
if retrospective application is impracticable, an explanation and description of how the
change in accounting policy was applied.
Financial statements of subsequent periods need not repeat these disclosures.
If an entity has not applied a new standard or interpretation that has been issued but is not
yet effective, the entity must disclose that fact and any and known or reasonably estimable
information relevant to assessing the possible impact that the new pronouncement will have
in the year it is applied. [IAS 8.30]
Accounting Estimates
An accounting estimate the exercise of judgement based on the later information available
at the time.
CPA. Dr. Fred Sporta; KCAU 2
ACCOUNTING POLICIES, CHANGES IN ACOUNTING ESTIMATES AND ERRORS (I A S 8)
- It govern, the following topics:
Selection of accounting policies
Changes in Accounting policies
Changes in Accounting estimates
Correction of Prior Period error
Accounting Policies
- These are the principle, basic conventions, values, and practice applied by an entity
which specify how the effects of transactions and other event are reflected in the
financial statements.
- IAS 8 requires an entity to select and apply appropriate accounting policies complying
with International Financial Reporting Standards (IFRS) and interpretations to ensure
that the financial statements provide information that is:
(a) Relevant to the decision making needs of us
(b) Reliable in that they:
- Represent faithfully the results and financial position of the entity.
- Reflect the economic substance of events and transactions and not
merely the legal form.
- Are natural i.e. free from bias
- Are prudent
- Are complete in al material response
Changing Accounting Policies
- The general value is that accounting policies are normally kept the same
from period to period to ensure comparability of financial statements
over time.
- IFRS various accounting policies to be changed only if the change:
(a) Required by IFRS, or
(b) Will results in available and more relevant presentation of events or
transactions
A change in accounting policy occurs if there has been a change in:
1. Recognition e.g. an expense is now recognized rather than an asset
2. Presentation e.g. depreciation is now included in cost of sales rather than
administration expenses or
3. Measurement basis e.g. stating assets at replacement cost rather than historical cost.
Accounting for a change in accounting policy.
The required accounting treatment is that:
The change should be applied retrospectively, with an adjustment to the opening balance of
retained earnings in the statement of changes in equity.
1. Comparative information should be restated unless it is impracticable to do so.
CPA. Dr. Fred Sporta; KCAU 1
, 2. If the adjustment to opening retained earnings cannot be reasonably determined, the
change should be adjusted prospectively i.e. included in the current periods income
statement.
Disclosures relating to changes in accounting policies
When a change in accounting policy has a material effect on the current period or any prior
period presented or may have a material effect in subsequent periods, the following
disclosures should be made:
Disclosures relating to changes in accounting policy caused by a new standard or
interpretation include: [IAS 8.28]
the title of the standard or interpretation causing the change
the nature of the change in accounting policy
a description of the transitional provisions, including those that might have an effect
on future periods
for the current period and each prior period presented, to the extent practicable, the
amount of the adjustment:
o for each financial statement line item affected, and
o for basic and diluted earnings per share (only if the entity is applying IAS 33)
the amount of the adjustment relating to periods before those presented, to the
extent practicable
if retrospective application is impracticable, an explanation and description of how the
change in accounting policy was applied.
Financial statements of subsequent periods need not repeat these disclosures.
Disclosures relating to voluntary changes in accounting policy include: [IAS 8.29]
the nature of the change in accounting policy
the reasons why applying the new accounting policy provides reliable and more
relevant information
for the current period and each prior period presented, to the extent practicable, the
amount of the adjustment:
o for each financial statement line item affected, and
o for basic and diluted earnings per share (only if the entity is applying IAS 33)
the amount of the adjustment relating to periods before those presented, to the
extent practicable
if retrospective application is impracticable, an explanation and description of how the
change in accounting policy was applied.
Financial statements of subsequent periods need not repeat these disclosures.
If an entity has not applied a new standard or interpretation that has been issued but is not
yet effective, the entity must disclose that fact and any and known or reasonably estimable
information relevant to assessing the possible impact that the new pronouncement will have
in the year it is applied. [IAS 8.30]
Accounting Estimates
An accounting estimate the exercise of judgement based on the later information available
at the time.
CPA. Dr. Fred Sporta; KCAU 2
