Reporting financial performance

Question 1

How do you account for change in accounting policy and when do you need disclosures?

Answer 1

Retrospective application: as if always been in place. Adjust opening retained earning in SOCE and restate comparative info

Disclosures are needed if there is a material effect stating reasons and amounts adjusted

Question 2

How do you account for changes in accounting estimates?

Answer 2

Prospective application: Recognise in current and future periods

Question 3

How do you account for prior period errors (mention disclosure) ? How do they occur?

Answer 3

MM due to unused or misused info that was available and relevant.

Adjust- Retrospective correction (adjust cy opening retained earning and restate comparative).

Disclose nature of error, amount of correction to each FS line presented for prior periods and the amount of correction at beginning of earliest prior period found in CY report

Question 4

What is discontinued operation? How do you classify it?

Answer 4

Component of entity held for sale or disposed. It should:
- represent separate major line of business
- part of plan to sell business line
- bought for resale

Question 5

How do you treat discontinued operations?

Answer 5

SOPL should reflect total after tax PL from this
Further analysis of this (in PL or notes) should show revenue, expenses, pre-tax PL and income tax expense

Question 6

What does IAS does related party disclosure relate to and explain it? (2 types)

Answer 6

IAS24

Person related- if they have control/influence or member of management (e.g. close family- spouses, children, stepchildren and dependents)

Entity related- members are of same group, one entity is associate of other entity or both entities are joint ventures of same third party.

Question 7

Give examples of not related parties (4)

Answer 7

• 2 entities with director/key personnel in common
• 2 companies can have joint control over specific project
• Banks to clients, trade union to employees, electric/water company to people
• When company relies on one customer for large volume of business

Question 8

What is adjusting event with 4 examples?

Answer 8

Event leading to adjustment in FS.

• Settlement after reporting date confirming year end obligation (court case)
• Receipt of info of impairment
• Bankruptcy confirming irrecoverable debt
• Discovery of fraud

Question 9

What are non-adjusting events with examples?

Answer 9

Concerns conditions which did not exist at reporting date

• Plan to discontinue operation
• Major purchase of assets
• Destruction of assets (fire/flood)
• Court case commencing for events AFTER reporting date