Lecture 2 - Accounting Policies, Estimates and Errors

Question 1

accounting policy (current) definition?

Answer 1

the specific bases, conventions, rules & practices applied by an entity in preparing FSs

specific principles / rules used in preparing FSs

Question 2

accounting policy (new) definition?

Answer 2

the specific principles, measurement bases & practices applied by an entity in preparing FSs

specific principles / rules used in preparing FSs

Question 3

examples of accounting policies?

Answer 3

inventory measured at lower of cost or NRV

items of PPE measured using cost or revaluation models

Question 4

examples of an accounting policy that gives entity’s a choice of methodology?

Answer 4

inventory recognition methods, FIFO, LIFO, AVCO

Question 5

should accounting policies be selected to comply with international standards?

Answer 5

yes

Question 6

in the absence of IFRS, what is used?

Answer 6

management judgement

Question 7

instances in which accounting policy changes?

Answer 7

• change is required by international standard
• change results in more reliable and relevant info

Question 8

how do you disclose a change in accounting policy if change is caused by initial application of an international standard?

Answer 8

• include title of standard
• include description of transitional provisions in that standard

Question 9

how do you disclose a change in accounting policy if change is voluntary?

Answer 9

• disclose reasons for making the change

Question 10

how do you disclose a change in accounting policy for all changes?

Answer 10

• adjustments need to be made in the current and prior relevant periods

Question 11

IAS8 = ?

Answer 11

• many items cannot be measured, only estimated
• judgements are made
• this doesn’t undermine the reliability of the info

Question 12

when is a change in estimate necessary?

Answer 12

• if circumstances change
• if new information becomes available

Question 13

example of a policy and it’s relevant estimate?

Answer 13

e.g., policy = to depreciate or to not depreciate

estimate = use of straight line or reducing balance method

Question 14

how are changes in accounting estimates recognised?

Answer 14

prospectively

this means it applies to current and future periods only

comparative period information isn’t restated

Question 15

how are changes in accounting policies recognised?

Answer 15

retrospectively

this means it applies to current and past periods only

comparative period information is restated

Question 16

accounting error?

Answer 16

omissions or misstatements in recognising or presenting financial info

Question 17

examples of accounting errors?

Answer 17

misclassifying an asset

misstating a figure in the FSs

Question 18

types of accounting errors?

Answer 18

prior period errors

current period errors

Question 19

define prior period errors

Answer 19

errors that relate to a previous financial reporting period but are discovered after the FSs have been issued

Question 20

define current period errors

Answer 20

errors that are discovered and corrected within the same financial period in which they are incurred

Question 21

are prior period errors handled prospectively or retrospectively?

Answer 21

retrospectively

corrections are made to the current and previous periods

Question 22

are current period errors handled prospectively or retrospectively?

Answer 22

prospectively

corrections are made to the current period

Question 23

material prior period errors should be corrected…

Answer 23

retrospectively

the material misstatement must be corrected in the previous FSs and disclosed as restatements in the comparative FSs

Question 24

control account = ?

Answer 24

account that checks the arithmetical accuracy of a ledger

Question 25

if errors are found before the FS are prepared, how is the suspense account handled?

Answer 25

the suspense account will be included in the B/S where in the B/S it goes depends on whether it was debited or credited

Question 26

accounting errors? accounting policies? accounting estimates?

Answer 26

errors = misstatements/omissions policies = principles/rules estimates = judgements

Question 27

define comparative figures

Answer 27

figures given for previous years in the financial statements of an organisation for the purpose of comparison

Question 28

when is a 'restated' disclosure required?

Answer 28

when changes are made retrospectively this is so people viewing previous years' FSs aren't confused at the discrepancy

Question 29

define the suspense account?

Answer 29

account to balance entries which we don't know what to do with