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Key Definitions=
[IAS 8.5]
- 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
estimate is
an adjustment of the carrying amount of an asset or liability, or =
related
expense, resulting from reassessing the expected future benefits a=
nd
obligations associated with that asset or liability.
- International Financial
Reporting Standards are standards and interpretations adopted by the Internati=
onal
Accounting Standards Board (IASB). They comprise:
- International Financi=
al
Reporting Standards (IFRSs);
- International Account=
ing
Standards (IASs); and
- Interpretations devel=
oped
by the International Financial Reporting Interpretations Committee
(IFRIC) or the former Standing Interpretations Committee (SIC) and
approved by the IASB.
- Materiality. Omissions or misstate=
ments
of items are material if they could, by their size or nature,
individually or collectively, influence=
the
economic decisions of users taken on the basis of the financial
statements.
- Prior period errors are omissions from, a=
nd
misstatements in, an entity's financial statements for one or more
prior periods arising from a failure to use, or misuse of, reliable
information that was available and could reasonably be expected to
have been obtained and taken into account in preparing those
statements. Such errors result from mathematical mistakes, mistake=
s in
applying accounting policies, oversights or misinterpretations of
facts, and fraud.
Selection and Application of
Accounting Policies
When a
Standard or an Interpretation specifically applies to a transaction, ot=
her
event or condition, the accounting policy or policies applied to that i=
tem
must be determined by applying the Standard or Interpretation and consi=
dering
any relevant Implementation Guidance issued by the IASB for the Standar=
d or
Interpretation. [IAS 8.7]
In the
absence of a Standard or an Interpretation that specifically applies to=
a
transaction, other event or condition, management must use its judgement in developing and applying an accounting
policy that results in information that is relevant and reliable. [IAS
8.10]. In making that judgement, management=
must
refer to, and consider the applicability of, the following sources in
descending order:
- the requirements and
guidance in IASB standards and interpretations dealing with similar
and related issues; and
- the definitions, recognit=
ion
criteria and measurement concepts for assets, liabilities, income =
and
expenses in the Framework. [IAS 8.11]
Manage=
ment
may also consider the most recent pronouncements of other standard-sett=
ing
bodies that use a similar conceptual framework to develop accounting
standards, other accounting literature and accepted industry practices,=
to
the extent that these do not conflict with the sources in paragraph 11.
[IAS 8.12]
Consistency of Accounting Polic=
ies
An ent=
ity
shall select and apply its accounting policies consistently for similar
transactions, other events and conditions, unless a Standard or an
Interpretation specifically requires or permits ca=
tegorisation
of items for which different policies may be appropriate. If a Standard=
or
an Interpretation requires or permits such categor=
isation,
an appropriate accounting policy shall be selected and applied consiste=
ntly
to each category. [IAS 8.13]
Changes in Accounting Policies<=
/span>
An ent=
ity is
permitted to change an accounting policy only if the change:
- is required by a stand=
ard or
interpretation; or
- results<=
span
style=3D'font-size:9.0pt;font-family:Arial'> in the financial stat=
ements
providing reliable and more relevant information about the effects=
of
transactions, other events or conditions on the entity's financial
position, financial performance, or cash flows. [IAS 8.14]
Note that changes in accounting policies do not include
applying an accounting policy to a kind of transaction or event that did
not exist in the past. [IAS 8.16]
If a c=
hange
in accounting policy is required by a new IASB standard or interpretati=
on,
the change is accounted for as required by that new pronouncement or, if
the new pronouncement does not include specific transition provisions, =
then
the change in accounting policy is applied retrospectively. [IAS 8.19] =
Retros=
pective
application means adjusting the opening balance of each affected compon=
ent
of equity for the earliest prior period presented and the other compara=
tive
amounts disclosed for each prior period presented as if the new account=
ing
policy had always been applied. [IAS 8.22]
- However, if it is
impracticable to determine either the period-specific effects or t=
he
cumulative effect of the change for one or more prior periods
presented, the entity shall apply the new accounting policy to the
carrying amounts of assets and liabilities as at the beginning of =
the
earliest period for which retrospective application is practicable=
, which
may be the current period, and shall make a corresponding adjustme=
nt
to the opening balance of each affected component of equity for th=
at
period. [IAS 8.24]
- Also, if it is impract=
icable
to determine the cumulative effect, at the beginning of the current
period, of applying a new accounting policy to all prior periods, =
the
entity shall adjust the comparative information to apply the new
accounting policy prospectively from the earliest date practicable.
[IAS 8.25]
Disclosures Relating to Changes=
in
Accounting Policies
Disclo=
sures
relating to changes in accounting policy caused by a new standard or
interpretation include: [IAS 8.28]
- the title of the stand=
ard or
interpretation causing the change;
- the nature of the chan=
ge in
accounting policy;
- a description of the
transitional provisions, including those that might have an effect=
on
future periods;
- for the current period=
and
each prior period presented, to the extent practicable, the amount=
of
the adjustment:
- for each financial
statement line item affected; and
- for basic and diluted
earnings per share (only if the entity is applying IAS 33); =
- the amount of the adju=
stment
relating to periods before those presented, to the extent practica=
ble;
and
- if retrospective applica=
tion
is impracticable, an explanation and description of how the change=
in
accounting policy was applied.
Financ=
ial
statements of subsequent periods need not repeat these disclosures.
Disclo=
sures
relating to voluntary changes in accounting policy include: [IAS 8.29] =
- the nature of the chan=
ge in
accounting policy;
- the reasons why applyi=
ng the
new accounting policy provides reliable and more relevant informat=
ion;
- for the current period=
and
each prior period presented, to the extent practicable, the amount=
of
the adjustment:
- for each financial
statement line item affected; and
- for basic and diluted
earnings per share (only if the entity is applying IAS 33); =
- the amount of the adju=
stment
relating to periods before those presented, to the extent practica=
ble;
and
- if retrospective applica=
tion
is impracticable, an explanation and description of how the change=
in
accounting policy was applied.
Financial statements of subsequent periods need not repeat
these disclosures.
If an =
entity
has not applied a new standard or interpretation that has been issued b=
ut
is not yet effective, the entity must disclose that fact and any and kn=
own
or reasonably estimable information relevant to assessing the possible
impact that the new pronouncement will have in the year it is applied. =
[IAS
8.30]
Changes in Accounting Estimate<=
/span>
The ef=
fect
of a change in an accounting estimate shall be rec=
ognised
prospectively by including it in profit or loss in: [IAS 8.36]
- the period of the chan=
ge, if
the change affects that period only; or
- the period of the change =
and
future periods, if the change affects both.
Howeve=
r, to
the extent that a change in an accounting estimate gives rise to change=
s in
assets and liabilities, or relates to an item of equity, it is recognised by adjusting the carrying amount of the
related asset, liability, or equity item in the period of the change. [=
IAS
8.37]
Disclosures Relating to Changes=
in
Accounting Estimate
Disclo=
se:
- the nature and amount =
of a
change in an accounting estimate that has an effect in the current
period or is expected to have an effect in future periods
- if the amount of the eff=
ect in
future periods is not disclosed because estimating it is
impracticable, an entity shall disclose that fact. [IAS 8.39-40] <=
o:p>
Errors
The ge=
neral
principle in IAS 8 is that an entity must correct all material prior pe=
riod
errors retrospectively in the first set of financial statements authorised for issue after their discovery by: [I=
AS
8.42]
- restating the comparat=
ive
amounts for the prior period(s) presented in which the error occur=
red;
or
- if the error occurred be=
fore
the earliest prior period presented, restating the opening balance=
s of
assets, liabilities and equity for the earliest prior period
presented.
Howeve=
r, if
it is impracticable to determine the period-specific effects of an erro=
r on
comparative information for one or more prior periods presented, the en=
tity
must restate the opening balances of assets, liabilities, and equity for
the earliest period for which retrospective restatement is practicable
(which may be the current period). [IAS 8.44]
Furthe=
r, if
it is impracticable to determine the cumulative effect, at the beginnin=
g of
the current period, of an error on all prior periods, the entity must
restate the comparative information to correct the error prospectively =
from
the earliest date practicable. [IAS 8.45]
Disclosures Relating to Prior P=
eriod
Errors
Disclo=
sures
relating to prior period errors include: [IAS 8.49] <=
/p>
- the nature of the prior
period error;
- for each prior period
presented, to the extent practicable, the amount of the correction=
:
- for each financial
statement line item affected; and
- for basic and diluted
earnings per share (only if the entity is applying IAS 33); =
- the amount of the corr=
ection
at the beginning of the earliest prior period presented; and =
- if retrospective restate=
ment
is impracticable, an explanation and description of how the error =
has
been corrected.
Financ=
ial
statements of subsequent periods need not repeat these disclosures.
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