Topic 2: Accounting Policies, Estimates & Errors (IAS8)

Question 1

Define the term ‘accounting policy’ and explain how an entity should
select its accounting policies.

Answer 1

• Existing Definition: “the specific bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements”.
• Proposed New Definition: “the specific principles, measurement bases and practices applied by an entity in preparing and presenting financial statements”.

Question 2

Explain the circumstances under which an entity may change an
accounting policy.

Answer 2

• The change is required by an international standard.
• Or, the change results in reliable and more relevant information.

Question 3

How must an entity account for a change in accounting policy?

Question 4

List the disclosures
which must be made when an accounting policy is changed.

Answer 4

For changes caused by the initial application of an international standard:

• the title of the standard and a description of any transitional provisions in that standard.

For voluntary changes in accounting policies:

• the reasons for making the change.

For all changes in accounting policies:

• the nature of the change.
• adjustments made in the current period and in each prior period presented.

Question 5

Explain what is meant by an accounting estimate.

Question 6

Explain how to account for a change in an accounting estimate.