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

1
Q

IAS 8 focuses on

A
  • accounting policies and considers the estimation techniques used in implementing them
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2
Q

Accounting policies are the

A
  • specific principles, bases, conventions, rules, and practices applied by an entity in preparing and presenting financial statements
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3
Q

Accounting standards…

A
  • lay down accounting principles, not specific accounting policies
  • a framework not rules
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4
Q

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

A
  • relevance
  • reliability
  • faithful representation
  • substance over form
  • neutrality
  • prudence
  • completeness
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5
Q

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

A
  • provides consistency

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

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6
Q

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

A
  • if required by an accounting standard

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

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7
Q

What needs to be done if an accounting policy changes

A
  • 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)
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8
Q

Examples of changes in accounting policy

A
  • 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
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9
Q

What are estimation techniques

A
  • 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
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10
Q

Changes in accounting estimates should be applied

A
  • prospectively
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11
Q

Examples of accounting estimates are

A
  • useful lives of depreciable assets

- an allowance (provision) for bad debts

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12
Q

Define prior period errors

A
  • a prior period error is where an error has occurred even though reliable information was available at the time the financial statement were issued
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13
Q

Examples of prior period errors

A
  • mathematical error
  • mistakes in applying an accounting policy
  • oversight or misinterpretation of facts
  • fraud
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14
Q

Prior period error should be adjusted

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