PAS 8 - Accounting policies, changes in accounting estimate

• What standard prescribes the criteria for selecting, applying, and changing accounting policies and the accounting and disclosure of changes in accounting policies, changes in accounting estimates and correction of prior period errors?

  PAS 8
• What do you call the specific principles, bases, conventions, rules, and practices applied by an entity in preparing and presenting financial statements?

  accounting policies
• PAS 8 requires changes in accounting policies if;

  1. if it is required by the PFRSs
  2. If it will provide more reliable and relevant in formation
• Examples of not a change in accounting policies;

  1. the application of an accounting policy for transactions, other events, or conditions that differ in substance from those previously occuring
  2. application of new accounting policy to transactions that did not occur previously or were immaterial
• order priority of accounting changes in accounting policy

  1. transitional provision in a PFRS, if any
  2. retrospective application
  3. prospective application
• two types of accounting changes

  1. changes in accounting policy
  2. change in accounting estimate
• It means adjusting the opening balance of each affected component of equity for the earliest prior period presented and the other comparative amount disclosed for each prior period presented as if the new accounting policy had always been applied


  Retrospective Application
• A voluntary change in accounting policy is accounted for by retrospective
• It is the monetary amounts in financial statements that are subject to measurement uncertainty


  Accounting Estimates
• a changes in accounting estimate does not relate to prior period that is why this is not a correction of error
• It is the normally results from changes on how the expected inflows or outflows of economic benefits are realized from asset or liability incurred


  Changes in Accounting Estimate
• If a change is hard to distinguish between the two changes, it is treated as a change in accounting estimates
• A change in accounting estimate is accounted for using the prospective application
• Prospective application means recognizing the effects of change in profit or loss, either in;

  1. the period of change; or
  2. the period of change and future periods, if both are affected
• Under prospective application, the beginning balances of retained earnings and the previous financial statements are not restated
• What do you call to the misapplication of accounting policy, mathematical mistakes, oversights or misinterpretations of facts and fraud?

  Errors
• Material errors - those that cause the FS to be mistated

  Intentional errors - fraud
• Financial statements do not comply to PFRSs if they contain either material errors or immaterial errors made intentionally
• Errors of commission - doing something wrong

  Errors of omission - not doing something that should have been done
• Type of error according to the period of occurrence;

  1. Current period errors
  2. Prior period errors4
• What type of errors are error in the current period that are discovered either during the current period or before the FS were authorized for issue and are corrected simply by correcting entries?

  Current period errors
• What errors are errors in one or more prior periods that were only discovered during or after the current period but before the FS were authorized for issue and are corrected by retrospective restatement?


  Prior period error
• Retrospective restatement means;

  1. restating the comparative amounts for the prior periods presented in which the error occurred; or
  2. if the error occurred before the earliest prior period presented, restating the opening balances of ALE for the earliest prior period presented
• Retrospective;

  1. Restatement - correcting a prior period error as if the error had never occured
  2. Application - applying a new policy as if the policy had always been applied