Accounting
Policies
Definition
Accounting
policies are the specific principles, bases, conventions, rules and practices
applied by an entity in preparing and presenting financial statements.
1.
Selection and Application of Accounting Policies
·
If a standard or interpretation deals with a
transaction, use that standard or interpretation
·
If no standard or interpretation deals with a
transaction, judgment should be applied. The following sources should be
referred to, to make the judgment:
o Requirements and guidance in other
standards/interpretations dealing with similar issues
o Definitions, recognition criteria in the framework
o May use other GAAP that use a similar conceptual
framework and/or may consult other industry practice / accounting literature
that is not in conflict with standards / interpretations.
2.
Consistency
of Accounting Policies
Policies
should be consistent for similar transactions, events or conditions.
Only change a policy if:
·
Standard/interpretation requires it, or
·
Change will provide more relevant and reliable
information
3. Principle of Change
If change
is due to new standard / interpretation, apply transitional provisions. If no
transitional provisions, apply retrospectively.
If
impractical to determine period-specific effects or cumulative effects of the
error, then retrospectively apply to the earliest period that is practicable.
4.
Disclosure
·
The title of the standard / interpretation
that caused the change
·
Nature of the change in policy
·
Description of the transitional provisions
·
For the current period and each prior period
presented, the amount of the adjustment to:
o Each line
item affected
o Earnings
per share.
·
Amount of the adjustment relating to prior
periods not presented
·
If retrospective application is impracticable,
explain and describe how the change in policy was applied
·
Subsequent periods need not repeat these
disclosures.
Changes
in Accounting Estimates
Definition
A change in an accounting estimate is
an adjustment of the carrying amount of an asset or liability, or related
expense, resulting from reassessing the expected future benefits and
obligations associated with the asset or liability.
1. Principle of Change
Recognize
the change prospectively in profit or loss in:
·
Period of change, if it only affects that
period; or
·
Period of change and future periods (if
applicable).
2. Disclosure
·
Nature and amount of change that has an effect
in the current period (or expected to have in future)
·
Fact that the effect of future periods is not
disclosed because of impracticality
·
Subsequent periods need not repeat these
disclosures.
Errors
Definition
Prior period errors are omissions
from, and misstatements in, an entity’s financial statements for one or more
prior periods arising from failure to use/misuse of reliable information that:
·
Was available when the financial statements
for that period were issued
·
Could have been reasonably expected to be
taken into account in those financial statements.
Errors include:
·
Mathematical mistakes
·
Mistakes in applying accounting policies
·
Oversights and misinterpretation of facts
·
Fraud.
1.
Principle of Change
·
Correct all errors retrospectively
·
Restate the comparative amounts for prior
periods in which error occurred or if the error occurred before that date –
restate opening balance of assets, liabilities and equity for earliest period
presented.
If
impractical to determine period-specific effects of the error (or cumulative
effects of the error), restate opening balances (restate comparative
information) for earliest period practicable.
2.
Disclosure
·
Nature of the prior period error
·
For each prior period presented, if
practicable, disclose the correction to:
o
Each line item affected
o
Earnings per share (EPS).
·
Amount of the correction at the beginning of
earliest period presented
·
If retrospective application is impracticable,
explain and describe how the error was corrected
·
Subsequent periods need not to repeat these
disclosures.
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