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FAR/AP > 05 Accounting Changes & Error Correction > Flashcards

05 Accounting Changes & Error Correction Flashcards

1
Q

Specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting FS.

A

Accounting Policies

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2
Q

Standards and interpretations adopted by the FSRSC

A

PFRS

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3
Q

What comprises PFRS?

A

PFRS
PAS
Interpretations

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4
Q

What ios the hierarchy of reporting standards?

A
  1. PFRS
  2. Judgment
    a) requirements in other PFRS dealing with similar transactions
    b) conceptual framework
    c) pronouncements by other standard-setting bodies
    d) other accounting literatures and industry practices
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5
Q

What is a change in accounting policy and what is the accounting treatment and effect of adjustment?

A

Change in measurement bases (e.g. FIFO to WAVE)

Treatment:
a) transitional provision (check PFRS)
b) retrospective application
c) prospective if retrospective is impractical

Effect:
Beginning balance of RE if retrospective

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6
Q

What is a change in accounting estimate and what is the accounting treatment and effect of adjustment?

A

Changes in realization or incurrence of expected inflow or outflow of economic benefits from assets or liabilities (e.g. change in useful life)

Treatment:
Prospective

Effect:
P/L of current and/or future periods

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7
Q

What is a correction of prior and period errors and what is the accounting treatment and effect of adjustment?

A

Intentional and unintentional misapplication of principles, misinterpretation of facts and mathematical mistakes

Treatment:
a) retrospective restatement
b) prospective if retrospective is impractical

Effect:
Beginning balance of RE if retrospective

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8
Q

Monetary amounts in financial statements that are subject to measurement uncertainty

A

Accounting estimates

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9
Q

When it is difficult to distinguish a change in accounting policy from a change in accounting estimate, the change is treated as a change in ________________.

A

Accounting Estimate

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10
Q

[Change in accounting estimate or policy?]
Change from FIFO to WAVE

A

Accounting Policy

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11
Q

When can you change accounting policies?

A
  1. required by PFRS
  2. results to more relevant and reliable information
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12
Q

[Change in accounting estimate or policy?]
Change in method of recognizing revenue from long-term construction contracts

A

Accounting Policy

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13
Q

[Change in accounting estimate or policy?]
Change of financial reporting framework such as PFRS for SMEs to full PFRS

A

Accounting Policy

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14
Q

[Change in accounting estimate or policy?]
Initial adoption of revaluation model for PPE and intangible assets

A

Accounting Policy

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15
Q

[Change in accounting estimate or policy?]
Change from cost model to FV model of measuring investment property

A

Accounting Policy

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16
Q

[Change in accounting estimate or policy?]
Change in depreciation or amortization methods

A

Accounting Estimate

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17
Q

[Change in accounting estimate or policy?]
Change in business model for classifying financial assets resulting to reclassification between financial asset categories

A

Accounting Policy

18
Q

[Change in accounting estimate or policy?]
Change in useful life of depreciable assets

A

Accounting Estimate

19
Q

[Change in accounting estimate or policy?]
Change in residual value of depreciable assets

A

Accounting Estimate

20
Q

[Change in accounting estimate or policy?]
Change in required allowances for impairment losses and uncollectible accounts

A

Accounting Estimate

21
Q

[Change in accounting estimate or policy?]
Changes in FV less cost to sell on non-current assets held for sale and biological assets

A

Accounting Estimate

22
Q

Intentional act involving the use of deception to obtain and unjust or illegal advantage

A

Fraud

22
Q

[Change in accounting estimate or policy?]
Changes in currency exchange rates for foreign currency denominated cash and receivables

A

Accounting Estimate

23
Q

Unintentional misstatement in FS including omission of an amount of disclosure

A

Error

24
Q

What is the effect on net income and retained earnings of:
1. overstated sales
2. overstated COGS
3. overstated expenses

A
  1. direct
  2. inverse
  3. inverse
25
Q

What is the formula of working capital?

A

Current assets minus current liabilities

26
Q

What is the effect on cost of sales of:
1. overstated beg inventory
2. overstated net purchases
3. overstated end inventory

A
  1. direct
  2. direct
  3. inverse
27
Q

What is the effect on working capital of:
1. overstated current assets
2. overstated current liabilities

A
  1. direct
  2. inverse
28
Q

Type of Errors as to Period of Occurrence

A
  1. current period
  2. prior period
29
Q

Type of Errors as to Elements Affected

A
  1. income statement
  2. statement of financial position
  3. combined
30
Q

Types of Combined I/S and SFP errors

A
  1. counterbalancing
  2. non-counterbalancing
31
Q

How do you treat errors committed during the reporting period discovered after reporting date but before FS are authorized for issue?

A

Correct as adjusting events after reporting period

32
Q

Correcting recognition, measurement and disclosure of amounts of elements of FS as if prior period error had never occurred

A

Retrospective restatement

32
Q

How to treat prior period errors?

A

Retrospective correction by:
a. restating comparative amounts
b. restate opening balances

33
Q

How to treat SFP/Balance sheet errors in the error year or subsequent year?

A

Error year: Reclassify
Prior year: Restate comparative prior SFP

34
Q

How to treat I/S errors in the error year or subsequent year?

A

Error year: Reclassify
Prior year: Restate comparative prior I/S

35
Q

Errors corrected after two accounting periods

A

Counterbalancing Errors

36
Q

Examples of counterbalancing errors

A

Omissions of:
Deferred expense
Defered income
Accrued expense
Accrued revenues

Overstatement or understatement of:
Sales
Purchases
Errors affecting ending inventory

37
Q

Errors that do not offset in the next accounting period

A

Non-counterbalancing Errors

38
Q

What PAS governs Accounting Policies, Estimate and Errors?

A

PAS 8

FAR/AP (7 decks)

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