Accounting Policies, Changes in Accounting Estimates and Errors Flashcards
(14 cards)
What are the three changes we are talking about?
- Accounting policy changes (APO)
- Accounting estimate changes.
- Correction of prior period errors.
What is the acronym that we use for these changes?
PREP-ERR
Policy changes = Retrospective
Estimate changes = Prospective
Error changes = Retrospective
What are changes in accounting policies?
Changes in principles, bases, conventions, rules and practices used to prep FS.
What are changes to accounting estimates?
From changes in circumstances on which the estimate was based on or as a result of new information/new experience.
Some examples include:
Bad debts, inventory obsolescence, FV of FI, useful life of assets, warranty provisions, lawsuit provisions.
What are prior period errors?
Omissions and misstatements in prior periods FS.
Examples include: Mathematical mistakes, mistakes in applying APO, oversights, misinterpretation of facts, and fraud.
What exactly does retrospectively mean?
Retrospective application: Applying new accounting policy as if that policy had always been applied.
Retrospective restatement: Correcting the amounts as if a prior period error had never occurred.
What exactly does prospective mean?
Applying the new accounting policy after the date as at which the policy is changed and recognizing the effect of the change in the accounting estimate in the current and future periods.
What is the recognition process for changes in accounting policies?
Can only change accounting policies when:
1. Required by IFRS
2. Results in FS providing reliable and more relevant information
Account for change in APO in accordance with specific IFRS standard.
If no specific section, the use judgement. If due to new standard, then retrospectively.
What is the recognition process for changes in accounting estimates?
Must be accounted for prospectively by including it in NET INCOME.
- Period of change, if change affects that period only.
- Period of change and future periods, if the change affects both.
What is the recognition process for prior period errors?
Correct material prior period errors retrospectively in the first set of FS completed after the discovery.
What needs to be disclosed for any of these changes?
Nature and amount of change/error.
How do policy changes come about?
- Through the standard wanting the change (ie: GAAP implements the change)
- The effect of voluntary change provides reliable and more relevant information to the FS users.
How do changes in accounting estimates arise?
A result of new information coming available that was not available at the previous statement of financial position date.
What is the main difference between IFRS and ASPE?
Unlike IFRS, ASPE does not require entities to provide a disclosure note about the expected effect on the entities financial results.
