ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS (IAS 8)

Question 1

What are acounting policies? (def)

Answer 1

Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements.

Question 2

What is a Change in accounting estimates? (def)

Answer 2

A change in an accounting estimate is an adjustment of the carrying amount of an asset or liability, or related expense, resulting from reassessing the expected future benefits and obligations associated with the asset or liability.

Question 3

What is a prior period error? (def)

Answer 3

Prior period errors are omissions from, and misstatements in, an entity’s financial statements for one or more prior periods arising from failure to use/misuse of reliable information that:
* Was available when the financial statements for that period were issued
* Could have been reasonably expected to be taken into account in those financial statements.

Question 4

What errors include?

Answer 4

• Mathematical mistakes
• Mistakes in applying accounting policies
• Oversights and misinterpretation of facts
• Fraud

Question 5

How to select and apply accounting policies?

Answer 5

• If a standard or interpretation deals with a transaction, use that standard or interpretation
• If no standard or interpretation deals with a transaction, judgment should be applied.

Question 6

When is it allowed to change a policy?

Answer 6

Policies should be consistent for similar transactions, events or conditions.

Only change a policy if:
* Standard/interpretation requires it, or
* Change will provide more relevant and reliable information.

Question 7

When are applied transitional provisions? If no transitional provisions, what is required to apply?

Answer 7

Apply transitional provisions if change is due to new standard / interpretation.
If no transitional provisions, apply retrospectively

Question 8

To which period is applied retrospectively if is impratical to determine period-specific effects or cumulative effects of the change in accounting policy?

Answer 8

In this case, retrospectively apply to the earliest period that is praticable.

Question 9

What is the recognition principle for changes in accounting estimates? Where are recognised?

Answer 9

Recognise the change prospectively in profit or loss in:
* Period of change, if it only affects that period; or
* Period of change and future periods (if applicable)

Question 10

When are errors corrected?

Answer 10

Correct all errors retrospectively

Question 11

What to do if is impratical to determine period-specific effects of the error (or cumulative effects of the error)?

Answer 11

Restate opening balances (restate comparative information) for earliest period praticable.

Question 12

How to correct the errors occurred?

Answer 12

Restate the comparative amounts for prior periods in which error occurred.
Restate opening balance of assets, liabilities and equity for earliest period presented.