Chapter 4 - IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors

Question 1

Changes in Accounting Policy

Answer 1

• An existing policy should only be changed where a new accounting standard requires such a change or where the new policy will result in reliable and more relevant information being processed.
• Should be accounted for retrospectively except where it is not practicable to determine the effect in prior periods
• Retrospective application - the F/S of the current period and each period presented are adjusted so that it appears as if the new policy has always been followed. This is achieved by restating the profits in each period presented and adjusting the opening position by restating R/E.
• If not practicable, the new policy should be applied from the earliest date that it is practicable to do so.

Question 2

Change in Accounting Estimates

Answer 2

• Should be recognized prospectively, by recognizing the change in the current and future periods affected by the change.

Question 3

Prior Period Errors

Answer 3

• Should be adjusted in the past periods in which the error arose rather than in the current period.
• Retrospective restatement corrects the F/S as if the prior period error had never occurred.
• If impracticable to determine the effect on an individual period of an error, then the adjustment should be made to the opening balance of the earliest period in which it is possible to identify such information.