PAS 8 and 10 Flashcards by Alexandra Cynthia Browne

Introduction of PAS 8

PAS 8 prescribes the criteria for selecting, applying, and changing accounting policies and the accounting and disclosure of changes in accounting policies, changes in accounting estimates and correction of prior period errors

enhance relevance, reliability and comparability of FS

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Specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements (PAS 8.5)

Accounting Policies

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Hierarchy of Reporting Standards

PFRSs
Judgment

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When making judgment, management shall consider:

a. Requirements in other PFRSs dealing with similar transactions
b. Conceptual Framework

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When making the judgment, management may consider:

a. Pronouncements issued by other standard-setting bodies
b. Other accounting literature and industry practices

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In the absence of a PFRS that specifically deals with transaction,

management uses its judgment in developing and applying an accounting policy that results in information that is relevant and reliable, while considering the applicability of the references listed above

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This assist entities in applying their requirements and states whether it is an integral part of the PFRSs. Integral part of the PFRSs is mandatory.

Guidance

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PAS 8 permits a change in accounting policy if the change:

a.is required by a PFRSs
b. results in reliable and more relevant information

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Change from FIFO to the Weighted Average cost formula for inventories

Change in Accounting Policy

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Change from the cost model to the fair value model of measuring investment property

Change in Accounting Policy

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Change from the cost model to the revaluation model of measuring property, plant, and equipment and intangible assets

Change in Accounting Policy

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Change in business model for classifying financial assets

Change in Accounting Policy

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Change in the method of recognizing revenue from long-term construction contracts

Change in Accounting Policy

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Change to a new policy resulting from the requirement of a new PFRS

Change in Accounting Policy

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Change in financial reporting framework such as from PFRS for SMEs to full PFRSs

Change in Accounting Policy

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The application of ____ for transactions, other events or conditions that differ in substance from those previously occurring

NOT Change in Accounting Policy

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Application of a new ___ for transactions, events or conditions that did not occur previously or were immaterial

NOT Change in Accounting Policy

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Order of Priority for Changes in Accounting Policies

Transitional provision in a PFRS, if any
Retrospective application, in the absence of a transitional provision
Prospective application, if retrospective application is impracticable

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Order of Priority for Changes in Accounting Policies

Transitional provision in a PFRS, if any
Retrospective application, in the absence of a transitional provision
Prospective application, if retrospective application is impracticable

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If entity changes an accounting policy, it shall refer first to ____

transitional provision that specifically deals with that accounting policy

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If there is no transitional provision, entity shall use ____

retrospective application

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If retrospective application is impracticable

prospective application

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Adjusting the opening balance of each affected component of equity (retained earnings) for earliest prior period presented as if the new accounting policy had always been applied

Retrospective Application

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Cannot be done after making every reasonable effort to do so

Impracticable

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Prior period effects cannot be determined or requires significant estimates and assumptions to when the prior fs were prepared, and these are impossible to determine in the current period

Retrospective treatment is impracticable

Voluntary change in accounting policy is accounted by ___

retrospective application

Early application of a PFRS is ___

not a voluntary change in accounting policy

Necessary in order to provide relevant information

Use of reasonable estimates

Essential part of financial reporting and do not undermine the reliability of financial reports

Estimates

5 that needs estimation:

a. net realizable value of inventories b. depreciation c. bad debts d. fair value of financial assets or financial liabilities e. provisions

Need to be revised when new information or more experience is obtained

Change in accounting estimate

Adjustment of the carrying amount of asset or liability or the amount of periodic consumption of an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities

Change in accounting estimate

Results from change in measurement basis

Change in Accounting Policy

Results from changes on how the expected inflows or outflows of economic benefits are realized from assets or incurred on liabilities

Change in Accounting Estimate

Change in depreciation method

Changes in Accounting Estimates

Change in estimated useful life or residual value of a depreciable asset

Changes in Accounting Estimates

Change in the required balance of allowance for uncollectible accounts or impairment losses

Changes in Accounting Estimates

Change in estimated warranty obligations and other provisions

Changes in Accounting Estimates

Change is difficult to distinguish between change in accounting policy and estimate, the change is treated as

change in an accounting estimate

recognizing the effects of the chane in profit or loss

prospective application

changes in accounting estimates are account for by

prospective application

Prospective application in periods:

a. period of change; or b. period of change and future periods, if both are affected

Under prospective application, the beginning balance of retained earnings and the previous financial statements are ________

not restated

Errors that cause financial statements to be misstated

material errors

errors that are intentional

fraud

Error in doing something wrong

error of commission

Error not doing something that should have been done

Error of omission

errors in current period that were discovered during current period or after but before fs were authorized for issue

current period errors

To correct current period errors

- correcting entries

errors in one or more prior periods that were only discovered either during the current period or after current period but before fs were authorized for issue

Prior period errors

To correct prior period errors

retrospective restatement

restating the comparative amounts for the prior periods presented in which error occured

retrospective restatement

if the error occurred before the earliest prior period presented, restating the opening balances of A,L, OE for the earliest prior period presented

retrospective restatement

correcting a prior period error as if the error never occurred

retrospective restatement

applying a new accounting policy as if the policy had always been applied

retrospective application

If is it impracticable to determine the cumulative effect of a prior period error at the beginning of the current period (retrospective restatement) the entity is allowed to correct _____

prospectively

Accounting for, and disclosures of, events after the reporting period, including disclosures regarding the date when the financial statements were authorized for issue

PAS 10

Events favorable and unfavorable, that occur between the end of the reporting period and the date when the financial statements are authorized for issue

Events after the Reporting Period

Date when management authorizes the financial statements for issue regardless of whether such authorization is final or subject to further approval

date of authorization of the financial statements

two types of events after the reporting period

1. adjusting events after the reporting period 2. non-adjusting events after the reporting period

events that provide evidence of conditions that existed at the end of the reporting period

adjusting events after the reporting period

events that are indicative of conditions that arose after the reporting period

non-adjusting events after the reporting period

The settlement after the reporting period of a court case that confirms that the entity has a present obligation at the end of reporting period

Adjusting events after the reporting period

The receipt of information after the reporting period indicating that an asset was impaired at the end of reporting period

Adjusting events after the reporting period

bankruptcy of a customer that occurs after the reporting period may indicate that the carrying amount of a trade receivable at the end of reporting period is impaired

Adjusting events after the reporting period

The sale of inventories after the reporting period may give evidence to their net realizable value at the end of reporting period

Adjusting events after the reporting period

The determination after the reporting period of the cost of asset purchased, or the proceeds from asset sold, before the end of reporting period

Adjusting events after the reporting period

The determination after the reporting period of the amount of profit-sharing or bonus payments, if the entity had a present legal or constructive obligation at the end of reporting period to make such payments

Adjusting events after the reporting period

The discovery of fraud or errors that indicate that the financial statements are incorrect

Adjusting events after the reporting period

Adjusting events require _____ of amounts in the financial statements

adjustments

Non-adjusting require what if they are material

Disclosure

Changes in fair values, foreign exchange rates, interest rates or market prices after the reporting period