Tutorial 2 Flashcards
When should you change Accounting Policies?
What is an example of such change?
Change only if required or results in more reliable and more relevant information
Example: Application of a new IFRS
Voluntary change in inventory valuation approach (e.g. weighted average to FIFO)
What are Accounting Estimates?
When should you revise them?
Give examples
A change in accounting estimate is adjustment of the carrying amount of an asset or a liability, or the amount of the depreciation of an asset.
Revise if changes occur in the circumstances of which the estimate was based on or as a result of new information or more experience.
Example: Useful life of an asset, bad debt, warranty obligations
What is an Accounting error?
When should it be corrected?
Give examples
An accounting error is an omission from, and misstatements in the entity’s financial statements arising from a failure to use, or a misuse of, reliable information that was available and could resonably be expected to have been taken into account
Example: Asset not recorded, measurement basis applied that is disallowed, wrong classification, disclosure omitted (utelämnad)
How do you apply a change in Accounting Policy?
RETROSPECTIVE APPLICATION!
Adjust: The opening balance sheet of the earliest period presented and:
The other comparative amounts disclosed for each prior period as if the new accounting policy had always been applied
How do you apply a change in Accounting Estimate?
PROSPECTIVE APPLICATION!
Include change in profit or loss in the period of the change and future affected periods and:
Recognise resulting changes in the carrying amount of assets and liabilities or equity in the period of the change
How do you apply a correction of prior period errors?
RETROSPECTIVE RESTATEMENT!
Restate the comparative amounts for the prior periods presented in which the error occured or:
If the error occured before the earliest prior period presented, restate the opening balance sheet for the earliest prior period presented
What is a Functional currency?
The currency of the primary economic environment in which the entity operates.
What is Foreign Currency Transactions?
How do you record these transactions?
Transactions in currencies other than the functional currency of the entity recording the transaction
You record these transactions at transaction date exchange rates (or average exchange rates)
At the reporting date retranslate MONETARY items at reporting date exchange rate
Record translation gains and losses in P&L
What are Foreign Currency Financial statements and how do you do them?
It is the translation of financial statements of affiliates in currencies other than the reporting currency of the group reporting entity.
Translate assets & liabilities at reporting date exchange rate
Translate revenues, expenses, gains and losses at transaction date exchange rates
Record translation gains and losses in OCI
What are Events after the Reporting Period? (Subsequent Events)
Events, favourable or unfavourable that occurs between the end of the reporting period and the date when the financial statements are authorised for issue by the management
What are Adjusting Events?
Events after the reporting period that provide evidence of conditions that existed at the end of the reporting period.
Adjust the amounts recognised in the financial statements and the disclosures in the notes
What are non-adjusting Events?
Events after the reporting period that are indicative of conditions that arose AFTER the reporting period.
Do NOT adjust the amounts recognised in the financial statements.
Disclose nature and estimated financial effect if it is a material event!
