Section 2500: Accounting Changes and Error Correction
International Accounting Standard 8
Accounting policies, changes in accounting estimates and errors
1. First version of IAS 8
"Unusual and prior period items and changes in accounting policies"
Issued in February 1978
2. Revisions
December 1993,
"Net profit or loss for the period, fundamental errors and changes in accounting policies"
December 2003, "Accounting policies, changes in accounting estimates and errors"
[U.S. GAAP Codification Topic]
250 Accounting changes and error corrections
3. Accounting policies, , IAS 8.13, 14, 15
Accounting policies should be applied consistently for similar transactions
Same accounting policies should be applied
(1) within each period and
(2) from one period to next, except for the changes allowed by IAS 8
Accounting policies can be changed only if:
(1) IFRS requires the change or
(2) financial statements provide "reliable and more relevant" information
--> after the change
4. Changes in accounting policies, IAS 8.19
Changes in accounting policies are applied retrospectively
5. Retrospective application of changes in accounting policies, IAS 8.22
Apply new accounting policy, as if the policy had always been applied.
(1) For the earliest prior period presented,
opening balances of equity components affected are adjusted
(2) For each prior period presented,
other comparative amounts disclosed are adjusted
6. Changes in accounting estimates, IAS 8.36
Changes in accounting estimates are applied prospectively
The effects of such changes are recognised in profit or loss
7. Depreciation related changes are applied prospectively, IAS 8.38
(1) changes in estimated useful life
(2) changes in expected pattern of consumption
8. Changes in accounting estimates: U.S. GAAP, ASC 250-10-45-17
Changes in accounting estimates are applied
(1) in the period of change and (2) future periods,
if the change affect both current and future periods.
Changes in accounting estimates are not applied retrospectively
Changes in depreciation methods are considered as changes in estimates
ASC 250-10-45-18
9. Material prior period errors are corrected by retrospective restatement
in the first set of financial statements authorised to issue
after those errors are discovered, IAS 8.42
10. Retrospective restatement
(1) Restate comparative amounts for previous periods presented
(2) If the errors occurred before the earliest prior period presented,
--> restate opening balances for the earliest prior period
11. If it is impracticable to estimate period-specific effects,
--> restate opening balances for the earliest period
--> for which retrospective restatement is practicable, IAS 8.44
12. If it is impracticable to estimate cumulative effect of errors,
--> restate comparative information prospectively
--> from the earliest date practicable, IAS 8.45
13. Prior period errors: U.S. GAAP, ASC 250-10-45-23, 24
Prior period errors are corrected, by restating prior period financial statements.
No rules about the cases where it is not practicable
14. Retrospective application, IAS 8.5
(1) New accounting policy is applied
(2) as if the policy had always been applied
15. Retrospective restatement
(1) Material prior period errors are corrected
(2) by restating prior period financial statements
(3) as if errors had never occurred.
16. For new IFRS issued, but not yet effective, IAS 8.30
disclose the following, if new IFRS was not applied:
(1) the fact that new IFRS, issued but not yet effective, was not applied
(2) information relevant to assess
--> how such application will impact financial statements,
in the period of initial application
17. New standard issued, but not yet effective: SEC
Rules for SEC registrants only, ASC 250-10-s50, ASC 250-10-s99-5
SEC Staff Accounting Bulletin, Topic 11.M
For accounting standards issued but not yet adopted,
--> potential effects of adoption in financial statements should be reported.
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