This summary includes Accounting Policies, Changes in Accounting Estimates and Errors. It summarizes the entire learning unit so that you can recap and spend more time on doing activities.
Financial Accounting (FAC3764)
SUMMARY of Learning Unit 6
STANDARDS:
- IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors
- IAS 21: The Effects of Changes in Foreign Exchange Rates
IAS 8: ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS
IAS 8 covers 3 main areas:
1. Accounting policies –
• How to select or develop accounting policies.
• How to change accounting policies.
2. Accounting estimates –
• How to change accounting estimates.
3. Errors –
• How to correct errors.
1. Accounting Policies
Accounting policies are the specific principles, bases, conventions, rules and practices
applied by an entity in preparing and presenting financial statements.
SELECTION AND APPLICATION OF ACCOUNTING POLICIES
TRANSACTION/ EVENT
Find a relevant IFRS and apply the policies therein.
Sets out accounting policies If IFRS contains GUIDANCE that is
containing relevant and integral any requirements
reliable information about contained in the guidance are
the transaction/event to MANDATORY and must be applied.
which they apply.
, In the absence of an IFRS
(no accounting policy for the transaction/event)
RELEVANT, RELIABLE, JUDGEMENT
Management shall use its judgement in developing and applying an accounting policy that
results in information that is:
1. Relevant – relevant to the economic decision-making needs of users.
2. Reliable – in the AFS
• Faithful representation of financial position, financial performance & cashflows
• Reflect the economic substance
• Neutral (no bias)
• Prudent
• Complete form material respects
3. Judgement – Management shall refer to and consider the applicability of the following
• IFRS requirements with similar issues
• Definitions, recognition criteria and measurement concepts for assets, liabilities,
income and expenses in the CF
• Management may also consider the most recent pronouncements of other
standard- setting bodies that use similar CF to develop accounting standards
CONSISTENCY OF ACCOUNTING POLICIES
An entity shall select and apply its accounting policies consistently for similar transactions,
other events and conditions, unless an IFRS specifically requires or permits its categorisation
of items for which different policies may be appropriate.
CHANGES IN ACCOUNTING POLICIES
An entity shall change an accounting policy only if the change:
(a) Is required by an IFRS; or
(b) Is a voluntary change resulting in reliable and more relevant representation.
The following are not changes in accounting policies:
(a) The application of an accounting policy for transactions/events that differ in substance
from those previously occurring; and
(b) The application of a new accounting policy for transactions/events that did not occur
previously or were immaterial.
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