Chapter 9 - Accounting Policies, Estimates & Errors Flashcards
(9 cards)
What standard covers accounting policies, estimates and errors?
IAS 8
What is the objective of IAS 8?
Enhance the relevance, reliability and comparability of financial statements
How does IAS 8 state a change of existing accounting policy should occur?
Requires changes to be accounted for retrospectively except where it is not practical to determine the effect in prior periods.
What is retrospective application under IAS 8?
Financial statements of current period and prior period are adjusted so it appears as if the new policy had always been followed.
Achieved by restating the profits in each period presented and adjusting the opening position by restating retained earnings
Under IAS 8, if it is not practicable to detemine either the specific effect in a particular period, when should the new policy be applied from?
New policy should be applied from the earliest date that it is practicable to do so
If an entity has changes in accounting estimates, how should this be reported under IAS 8?
Estimates relate to current information being more up to date, therefore should only be recognised in the period which it arises.
How does IAS 8 say that errors should be handled?
IAS 8 requires that these errors are adjusted in those past periods in which the error arose, rather than in the current period.
When errors are corrected retrospectively under IAS 8, what is the impact?
Corrects the financial statements as if the prior period error had never occurred.
What are the differences in accounting errors and changes in accounting estimates?
Accounting estimates are approximations. New information constantly becomes available and makes it obsolete.
Prior period errors , result from discoveries which undermine the reliability of the previously published financial statements.
