IAS 8- Accounting Policies, Changes In Accounting Estimates And Errors Flashcards
IAS 8 focuses on
- accounting policies and considers the estimation techniques used in implementing them
Accounting policies are the
- specific principles, bases, conventions, rules, and practices applied by an entity in preparing and presenting financial statements
Accounting standards…
- lay down accounting principles, not specific accounting policies
- a framework not rules
Accounting policies should be selected in accordance with international accounting standards. If no standard is applicable, policies should be selected in accordance with:
- relevance
- reliability
- faithful representation
- substance over form
- neutrality
- prudence
- completeness
Why are the same accounting policies usually adopted from period to period?
- provides consistency
- allows users to analyse trends over time in profit, cash flows and financial position
Changes in accounting policy will be rare and should be made only:
- if required by an accounting standard
- if the change will result in a more appropriate presentation of events or transactions
What needs to be done if an accounting policy changes
- 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)
Examples of changes in accounting policy
- 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
What are estimation techniques
- 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
Changes in accounting estimates should be applied
- prospectively
Examples of accounting estimates are
- useful lives of depreciable assets
- an allowance (provision) for bad debts
Define prior period errors
- a prior period error is where an error has occurred even though reliable information was available at the time the financial statement were issued
Examples of prior period errors
- mathematical error
- mistakes in applying an accounting policy
- oversight or misinterpretation of facts
- fraud
Prior period error should be adjusted
- in the past period in which it occurred (retrospectively)