Accounting Policy Changes

Question 1

What is a change in accounting policy

Answer 1

-> a business develops accounting policies in order to ensure that relevant and reliable financial information is is created for the uses of accounts

Might include
-depn policy on non current assets
-stock valuation policy
-treatment of goodwill

-> policies chosen ensure reliable unbiased info is produced that reflects the economic substance of transactions, and which faithfully represents the financial performance, position and cash flows of the business
-> must be applied consistently to promote comparability between financial statements of different accounting periods
-> change in accounting policy may be necessary to enhance the relevance and reliability of information contained in the financial statements

Question 2

IAS 8 accounting policies, changes in accounting estimates and errors

Answer 2

States that an entity should only change an accounting policy if
-required by an IFRS standard
-results in more reliable and relevant info for financial statement users (retrospectively)

Question 3

The problem

Answer 3

1. Calculating the prior year impact of accounting policy change is costly and time consuming
2. This deters entities from voluntarily changing accounting policies even if would be benefit financial statement users
3. International accounting standards board is concerned about changes in policy that arise as result of agenda decisions made by IFRS interpretations committee
4. The IFRS interpretations committee role is to respond to questions about the application of IFRS standards that are submitted by stakeholders. If the committee concludes that the existing IFRS standard is adequate then they publish an agenda decision.

Question 4

The proposal

Answer 4

Exposure draft ED accounting policy changes.

In this the board proposes that an accounting policy change resulting from an agenda decision should be implemented retrospectively unless
1. It is impracticable to do so (due to a lack of data)
2. The cost of working out the effect of the change exceeds the benefits to the users of the financial statements

Question 5

Accounting policy or accounting estimate (IMPORTANT)

Answer 5

1. Changes in accounting policies = applied retrospectively (past)
2. Changes in accounting estimates = applied prospectively (future)

IAS 8 defines:
-> accounting policies = are the specific principles, bases, conventions, rules, and practices applied by an entity in preparing and presenting financial statements
-> accounting estimates = are monetary amounts in financial statements that are subject to measurement uncertainties