IAS 8 Best summary policies estimates and errors

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IAS 8 Best summary policies estimates and errors comprises a high level summary of the three items in this standard:

  1. Accounting policies,
  2. Accounting Estimates
  3. Errors

1. Accounting policies

Definition:

Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements.

Selection and application of accounting policies:

  • If a standard or interpretation deals with a transaction, use that standard or interpretation
  • If no standard or interpretation deals with a transaction, judgment should be applied. The following sources should be referred to, to make the judgement:
    • Requirements and guidance in other standards/interpretations dealing with similar issues
    • Definitions, recognition criteria in the framework
    • May use other GAAP
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Retrospective or prospective application

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Retrospective or prospective application

Retrospective or prospective application

 

Retrospective application – Applying a new accounting policy to transactions, other events, and conditions as if that policy had always been applied (change in accounting policy) (IAS 8 5).

OR

Correcting the recognition, measurement and disclosure of amounts of elements of financial statements as if a prior period error had never occurred.

Prospective application of a change in accounting policy and of recognising the effect of a change in an accounting estimate, respectively, are:

  1. Applying the new accounting policy to transactions, other events and conditions occurring after the date as at which the policy is changed; and
  2. Recognising the effect of the change in the accounting
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Change in accounting principles

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Change in accounting principles – There is an underlying presumption that an accounting principle, once adopted, should not be changed for similar events and transactions. A change in principle may be Change in accounting principles caused by new events, changing conditions, or additional information or experience.

There are two circumstances when a company is required to change an accounting policy. These are:

  • If the change is required by a Standard or an Interpretation; or Change in accounting principles
  • If the change results in the financial statements providing more reliable and relevant information about the effects of transactions (or other events).

IAS 8 19 (b) requires retrospective application (i.e., the application of a different accounting method to previous years as if that Read more

Change in accounting estimate

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Change in accounting estimate – An adjustment of the carrying amount of an asset or a liability, or the amount of the 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. Changes in accounting estimates result from new information or new developments and, accordingly, are not correction of errors.

Therefore no retrospective restatement of financial statements is needed. The adjustment is recorded in profit or loss in the period it was re-estimated/re-calculated/re-validated.

Changes in accounting policies | Correction of errorsChanges in estimates

Estimation involves judgements based on the latest available, reliable information. For example, estimates may be required in … Read more

Accounting Policies to First IFRS Financial statements

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Accounting Policies to First IFRS Financial statements – An entity must use the same accounting policies in its opening IFRS statement of financial position and throughout all periods presented in its first IFRS financial statements. Those accounting policies must comply with each IFRSs effective at the end of its first IFRS reporting period, unless there is a mandatory exception to retrospective application or an optional exemption from the requirements of IFRSs.

[IFRS 1, paras 7 – 9] Accounting Policies to First IFRS Financial statements

Note that:

  • An entity may apply a new IFRS that is not yet mandatory if that IFRSs permits early application.
  • The transitional provisions in IFRSs do not apply to a first-time adopter’s transition to IFRSs.

Mandatory Exceptions to Retrospective Application Read more

Transition to IFRS 17 Insurance contracts

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Transition to IFRS 17 Insurance contracts Transition to IFRS 17 Insurance contracts – IFRS 17 should be applied for annual reporting periods beginning on or after 1 January 2021. FRS 17 supersedes IFRS 4 [IFRS 17 C34]. Early adoption is permitted if the entity applies IFRS 9 and IFRS 15 not later than on the date of initial application of IFRS 17.

1 January 2021 is the date of initial application of IFRS 17 unless an entity early adopts IFRS 17 [IFRS 17 C1]. The transition date is the beginning of the reporting period immediately preceding the date of initial application. Therefore, if an entity adopts on 1 January 2021, the transition date is 1 January 2020 [IFRS 17 C2Read more