Stodu Ias8

• Accounting Estimate


  A change in accounting estimate should be reported in the period of change and future periods if the change affects both
• Change in Accounting Estimate


  It does not affect the financial statements of prior periods
• A change in the periods benefited by a deferred cost because additional information has been obtained is an accounting change that should be reported in the period of change and future periods if the change affects both
• A change in the residual value of an asset arising because additional information has been obtained is an accounting change that should be reported in the period of change and future periods if the change affects both
• The effect of a change in accounting policy that is inseparable from the effect of a change in accounting estimate should be reported as a component of income from continuing operations, in the prior of change and future periods if the change affects both
• When an entity changed from the straight line method of depreciation to the double declining balance method, it should be reported as an accounting change that should be reported currently and prospectively
• Changing the depreciation method to conform with the depreciation method prevalent in a particular industry is not a justification for a change in depreciation method
• When an entity changed the expected service life of an asset, it should be reported as an accounting change that should be reported in the period of change and future periods
• Accounting changes are often made even though this may be a violation of the accounting concept of consistency
• Change in accounting estimate is not classified as an accounting change
• Reason for classifying accounting changes into change in accounting policy and change in accounting estimate

  Each change involves different method of recognition in the financial statements
• Retrospective treatment of a change in accounting estimate is prohibited under existing standard
• Accounting Policy


  The first step within the hierarchy of guidance when selecting accounting policies is to apply a standard from IFRS if it specifically relates to the transaction
• Accounting Policy


  In the absence of an accounting standard that applies specifically to a transaction, the most authoritative source in developing and applying an accounting policy is the requirement and guidance in the standard or interpretation dealing with similar and related issue
• A change in accounting policy shall be made when required by law, required by an accounting standard or an interpretation of the standard, or when the change will result in more relevant or reliable information about the financial position, financial performance and cash flows of the entity
• An entity is permitted to change an accounting policy when the change would result in the financial statements providing more reliable and relevant information about financial position, financial performance and cash flows
• Change in Accounting Policy

  Requires a retrospective adjustment to the financial statements
• A change in accounting policy requires that the cumulative effect of the change for prior periods should be reported as an adjustment to beginning retained earnings for the earliest period presented
• A change from cash basis to accrual basis of accounting is accounted for as a change in accounting policy
• A change from one method of depreciation to a different method of depreciation is not treated as a change in accounting policy
• When it is difficult to distinguish between a change in accounting estimate and a change in accounting policy, the change is treated as a change in accounting estimate with appropriate disclosure
• When an entity changes an accounting policy voluntarily, it should account for the change retrospectively
• Prospective Application


  Applying a new accounting policy to transactions occurring after the date at which the policy is changed
• Iate disclosure


  Disclosure of information
• Change in accounting policy


  A change in the principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements
• Correction of an error


  Correcting the recognition, measurement and disclosure of amounts of elements of financial statements as if prior period error had never occurred
• Change in accounting estimate with no appropriate disclosure


  A change in accounting estimate that is not disclosed or not appropriately disclosed
• Accounting for a voluntary change in accounting policy

  1. Inform shareholders prior to taking the decision

  2. Account for the change retrospectively

  3. Treat the effect of the change as a component of other comprehensive income

  4. Treat the change prospectively and adjust the effect of the change in the current period and future period
• Prospective application


  Recognizing a change in accounting policy in the current and future periods affected by the change
• Retrospective application


  Applying a new accounting policy to transactions as if that policy had always been applied
• Retrospective restatement


  Correcting the financial statements as if a prior period error had never occurred
• All of the following should be treated as a change in accounting policy, except a new policy resulting from the requirement of a new IFRS
• Impracticable


  When the entity cannot apply a requirement of a standard or an Interpretation after making every effort to do so, and the effect of the retrospective application is not determinable, the retrospective application requires assumptions about what management intention would have been at the time, or the retrospective application requires significant estimate
• Accounting for a prior period error when financial statements for a single year are being presented

  1. Show as an adjustment of the balance of retained earnings at the start of the current year

  2. Affect net income of the current year

  3. Show in the statement of changes in equity

  4. Include in other comprehensive income
• Prior period errors are reflected as adjustment of the opening balance of retained earnings of the earliest period presented
• Examples of correction of an error in previously issued financial statements

  • Change in the tax assessment related to prior period
  • Change from cash basis to accrual basis of accounting
• Accounting for a change from cash basis to accrual basis of accounting during the current year


  Report prior period adjustment resulting from the change in accounting policy
• Accounting for a change from an accounting principle that is not generally accepted to one that is generally accepted


  Report the effect of the change, net of applicable income tax, in the current income statement as component of income from continuing operations
• Accounting for an understatement of ending inventory in the prior year


  Restate the financial statements with corrected balances for all periods presented
• Accounting for an overstatement of depreciation expense in 2017 when the 2017 financial statements were authorized for issue on April 1, 2018


  Restate the depreciation expense reported for 2017 in the comparative figures of the 2018 financial statements