PAS 8 and 10 Flashcards
Introduction of PAS 8
PAS 8 prescribes the criteria for selecting, applying, and changing accounting policies and the accounting and disclosure of changes in accounting policies, changes in accounting estimates and correction of prior period errors
enhance relevance, reliability and comparability of FS
Specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements (PAS 8.5)
Accounting Policies
Hierarchy of Reporting Standards
- PFRSs
- Judgment
When making judgment, management shall consider:
a. Requirements in other PFRSs dealing with similar transactions
b. Conceptual Framework
When making the judgment, management may consider:
a. Pronouncements issued by other standard-setting bodies
b. Other accounting literature and industry practices
In the absence of a PFRS that specifically deals with transaction,
management uses its judgment in developing and applying an accounting policy that results in information that is relevant and reliable, while considering the applicability of the references listed above
This assist entities in applying their requirements and states whether it is an integral part of the PFRSs. Integral part of the PFRSs is mandatory.
Guidance
PAS 8 permits a change in accounting policy if the change:
a.is required by a PFRSs
b. results in reliable and more relevant information
Change from FIFO to the Weighted Average cost formula for inventories
Change in Accounting Policy
Change from the cost model to the fair value model of measuring investment property
Change in Accounting Policy
Change from the cost model to the revaluation model of measuring property, plant, and equipment and intangible assets
Change in Accounting Policy
Change in business model for classifying financial assets
Change in Accounting Policy
Change in the method of recognizing revenue from long-term construction contracts
Change in Accounting Policy
Change to a new policy resulting from the requirement of a new PFRS
Change in Accounting Policy
Change in financial reporting framework such as from PFRS for SMEs to full PFRSs
Change in Accounting Policy
The application of ____ for transactions, other events or conditions that differ in substance from those previously occurring
NOT Change in Accounting Policy
Application of a new ___ for transactions, events or conditions that did not occur previously or were immaterial
NOT Change in Accounting Policy
Order of Priority for Changes in Accounting Policies
- Transitional provision in a PFRS, if any
- Retrospective application, in the absence of a transitional provision
- Prospective application, if retrospective application is impracticable
Order of Priority for Changes in Accounting Policies
- Transitional provision in a PFRS, if any
- Retrospective application, in the absence of a transitional provision
- Prospective application, if retrospective application is impracticable
If entity changes an accounting policy, it shall refer first to ____
transitional provision that specifically deals with that accounting policy
If there is no transitional provision, entity shall use ____
retrospective application
If retrospective application is impracticable
prospective application
Adjusting the opening balance of each affected component of equity (retained earnings) for earliest prior period presented as if the new accounting policy had always been applied
Retrospective Application
Cannot be done after making every reasonable effort to do so
Impracticable
Prior period effects cannot be determined or requires significant estimates and assumptions to when the prior fs were prepared, and these are impossible to determine in the current period
Retrospective treatment is impracticable
Voluntary change in accounting policy is accounted by ___
retrospective application
Early application of a PFRS is ___
not a voluntary change in accounting policy
Necessary in order to provide relevant information
Use of reasonable estimates
Essential part of financial reporting and do not undermine the reliability of financial reports
Estimates
5 that needs estimation:
a. net realizable value of inventories
b. depreciation
c. bad debts
d. fair value of financial assets or financial liabilities
e. provisions
Need to be revised when new information or more experience is obtained
Change in accounting estimate
Adjustment of the carrying amount of asset or liability or the amount of periodic consumption of an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities
Change in accounting estimate
Results from change in measurement basis
Change in Accounting Policy
Results from changes on how the expected inflows or outflows of economic benefits are realized from assets or incurred on liabilities
Change in Accounting Estimate
Change in depreciation method
Changes in Accounting Estimates
Change in estimated useful life or residual value of a depreciable asset
Changes in Accounting Estimates
Change in the required balance of allowance for uncollectible accounts or impairment losses
Changes in Accounting Estimates
Change in estimated warranty obligations and other provisions
Changes in Accounting Estimates
Change is difficult to distinguish between change in accounting policy and estimate, the change is treated as
change in an accounting estimate
recognizing the effects of the chane in profit or loss
prospective application
changes in accounting estimates are account for by
prospective application
Prospective application in periods:
a. period of change; or
b. period of change and future periods, if both are affected
Under prospective application, the beginning balance of retained earnings and the previous financial statements are ________
not restated
Errors that cause financial statements to be misstated
material errors
errors that are intentional
fraud
Error in doing something wrong
error of commission
Error not doing something that should have been done
Error of omission
errors in current period that were discovered during current period or after but before fs were authorized for issue
current period errors
To correct current period errors
- correcting entries
errors in one or more prior periods that were only discovered either during the current period or after current period but before fs were authorized for issue
Prior period errors
To correct prior period errors
retrospective restatement
restating the comparative amounts for the prior periods presented in which error occured
retrospective restatement
if the error occurred before the earliest prior period presented, restating the opening balances of A,L, OE for the earliest prior period presented
retrospective restatement
correcting a prior period error as if the error never occurred
retrospective restatement
applying a new accounting policy as if the policy had always been applied
retrospective application
If is it impracticable to determine the cumulative effect of a prior period error at the beginning of the current period (retrospective restatement) the entity is allowed to correct _____
prospectively
Accounting for, and disclosures of, events after the reporting period, including disclosures regarding the date when the financial statements were authorized for issue
PAS 10
Events favorable and unfavorable, that occur between the end of the reporting period and the date when the financial statements are authorized for issue
Events after the Reporting Period
Date when management authorizes the financial statements for issue regardless of whether such authorization is final or subject to further approval
date of authorization of the financial statements
two types of events after the reporting period
- adjusting events after the reporting period
- non-adjusting events after the reporting period
events that provide evidence of conditions that existed at the end of the reporting period
adjusting events after the reporting period
events that are indicative of conditions that arose after the reporting period
non-adjusting events after the reporting period
The settlement after the reporting period of a court case that confirms that the entity has a present obligation at the end of reporting period
Adjusting events after the reporting period
The receipt of information after the reporting period indicating that an asset was impaired at the end of reporting period
Adjusting events after the reporting period
bankruptcy of a customer that occurs after the reporting period may indicate that the carrying amount of a trade receivable at the end of reporting period is impaired
Adjusting events after the reporting period
The sale of inventories after the reporting period may give evidence to their net realizable value at the end of reporting period
Adjusting events after the reporting period
The determination after the reporting period of the cost of asset purchased, or the proceeds from asset sold, before the end of reporting period
Adjusting events after the reporting period
The determination after the reporting period of the amount of profit-sharing or bonus payments, if the entity had a present legal or constructive obligation at the end of reporting period to make such payments
Adjusting events after the reporting period
The discovery of fraud or errors that indicate that the financial statements are incorrect
Adjusting events after the reporting period
Adjusting events require _____ of amounts in the financial statements
adjustments
Non-adjusting require what if they are material
Disclosure
Changes in fair values, foreign exchange rates, interest rates or market prices after the reporting period
Non-adjusting events after the reporting period
Casualty losses occurring after the reporting period but before the financial statements were authorized for issue
Non-adjusting events after the reporting period
Litigation arising solely from events occurring after the reporting period
Non-adjusting events after the reporting period
Significant commitments or contingent liabilities entered after the reporting period (significant guarantees)
Non-adjusting events after the reporting period
Major ordinary share transactions and potential ordinary share transactions after the reporting period
Non-adjusting events after the reporting period
Major business combination after the reporting period
Non-adjusting events after the reporting period
Announcing, or commencing the implementation of, a major restructuring after the reporting period
Non-adjusting events after the reporting period
Announcing a plan to discontinue an operation after the reporting period
Non-adjusting events after the reporting period
Change in tax rate enacted after the reporting period
Non-adjusting events after the reporting period
Declaration of dividends after the reporting period
Non-adjusting events after the reporting period
declared after the reporting period are not recognized as liability at the end of reporting period because no present obligation exists at the end of reporting period
Dividends
PAS 10 prohibits the preparation of financial statements on a going concern basis if management determines after the reporting period either that it intends to liquidate the entity or to cease trading, or that it has no realistic alternative but to do so
Going concern
