Week 11 Everything Flashcards
Prior period errors (AASB 108)
Omissions or misstatements in the entity’s financial statements. Referred to for one or more prior periods. Caused by failure to use, or misuse of (mistakes), reliable information.
Prior period errors (AASB 108)
The information that was mistakenly provided:
Was available at the time the financial statements for those
periods were authorised for issue, and could reasonably have been obtained and taken into account in the preparation and presentation of the financial statements.
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Prior period errors
Examples of such prior period errors include:
➢mathematical mistakes, (e.g. record incorrect amount)
➢ Omissions (failure to record), Duplicate accounting entries
➢ Misclassification (recording in incorrect account)
➢ Mistakes in applying accounting policies,
➢ fraud
How to account for prior period errors, once they are discovered?
The prior period errors are to be corrected retrospectively. If the error relates to last year, for which comparative information is provided, correct the comparative information for last year. If the error relates to an earlier year, for which comparative information is not provided, adjust the opening retained earnings, opening assets and/or liabilities for the last year. The error is not included in the current period’s statement of profit and loss and other comprehensive income.
Changes in accounting estimates (AASB 108)
When financial reports are prepared many estimates are made. But if circumstances change or new information is obtained, the estimates may be changed. Change of accounting estimates is NOT a correction of an error, because the original estimate was made using the best information available at that time.
Examples of estimates are:
➢ useful life of assets and residual value of depreciable assets;
➢ net realisable value of obsolete inventory;
➢ bad debts;
➢ warranty expenses.
Changes in accounting estimates are accounted for
prospectively. The change may affect:
Current period only (recognise in period of change)
Current and future periods (recognise in period of change and future periods)
Additional disclosure required in case of material
changes in accounting estimates, about nature and
amount of the change.
Accounting policies definition (AASB 108):
‘Accounting Policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements’. A change in accounting policies is a change in the principles or rules
applied in the preparation of financial statements.
AASB108.14 requires an entity to change its accounting policy only in the following two situations:
The change is required to comply with a new or revised AASB standard or interpretation,
The change is required because it will result in more reliable and relevant information being provided in the financial statements.
Changes in accounting policies
How to account for a change in accounting policies
A change in accounting policies is applied retrospectively (unless a new accounting standard or interpretation specifies transitional accounting procedures). The comparative information, which is provided for last year is adjusted as if the new accounting policy had always been applied. The opening retained earnings, opening assets and/or liabilities for last year are also adjusted as if the new accounting policy had always been applied.
Changes in accounting policies
How to account for a change in accounting policies
Additional disclosure
Additional disclosure required for changes in accounting policies: title of new or revised AASB standard or interpretation; a description of the change in accounting policy; the amount of the adjustments for the current year and for each last year, and the opening balances for the last year
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What is an event after the reporting period?
Event after the reporting period (definition)
Are those events or transactions, favourable and unfavourable, that occur between the reporting date and the date when the financial statements are authorised for issue
Material events can occur
after the end of the reporting period but before the date the financial report is authorised for issue
Event after the reporting period
The non-disclosure
of such events can make the financial report misleading, and affect decision making by users based on the financial statements
Two types of after reporting period events
Adjusting events
Non-adjusting events