IAS 8- Accounting Policies, Changes In Accounting Estimates And Errors

Question 1

IAS 8 focuses on

Answer 1

• accounting policies and considers the estimation techniques used in implementing them

Question 2

Accounting policies are the

Answer 2

• specific principles, bases, conventions, rules, and practices applied by an entity in preparing and presenting financial statements

Question 3

Accounting standards…

Answer 3

• lay down accounting principles, not specific accounting policies
• a framework not rules

Question 4

Accounting policies should be selected in accordance with international accounting standards. If no standard is applicable, policies should be selected in accordance with:

Answer 4

• relevance
• reliability
• faithful representation
• substance over form
• neutrality
• prudence
• completeness

Question 5

Why are the same accounting policies usually adopted from period to period?

Answer 5

• provides consistency

- allows users to analyse trends over time in profit, cash flows and financial position

Question 6

Changes in accounting policy will be rare and should be made only:

Answer 6

• if required by an accounting standard

- if the change will result in a more appropriate presentation of events or transactions

Question 7

What needs to be done if an accounting policy changes

Answer 7

• needs to be fully disclosed in a note to the accounts and should be applied retrospectively (changing everything so it looks like the new policy has always been applied)

Question 8

Examples of changes in accounting policy

Answer 8

• changes in legislation
• a new accounting standard
• changing the valuation method of inventory from weighted average to FIFO
• change in recognising an asset class at cost less depreciation to regular revaluation

Question 9

What are estimation techniques

Answer 9

• are the methods adopted in order to arrive at estimates monetary amounts
• estimated arise in relation to business activities because of the uncertainties inherent within them
• judgements are made based on the most up to date information and the use of estimates is a necessary part of the preparation of financial statements and does not undermine their reliability

Question 10

Changes in accounting estimates should be applied

Answer 10

• prospectively

Question 11

Examples of accounting estimates are

Answer 11

• useful lives of depreciable assets

- an allowance (provision) for bad debts

Question 12

Define prior period errors

Answer 12

• a prior period error is where an error has occurred even though reliable information was available at the time the financial statement were issued

Question 13

Examples of prior period errors

Answer 13

• mathematical error
• mistakes in applying an accounting policy
• oversight or misinterpretation of facts
• fraud

Question 14

Prior period error should be adjusted

Answer 14

• in the past period in which it occurred (retrospectively)