E-Portfolio

CHAPTER 5

PAS 8 – Accounting Policies, Changes in Accounting

Estimates and Errors

Objective and Scope

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.

It can have a great impact on an

Accounting Changes entity’s reported earnings

It is critically important that users of financial

statements understand the nature and effect of
accounting changes and must not rely solely on the
bottom line which is the net income or loss.

Accounting
These are principles/measurement basis.
Policies

Selection and application of those accounting policies

must be consistent

Changes in accounting policies Hierarchy of reporting standards

are accounted for using the
1. PFRSs
following order of priority:
2. Judgement
1. Transitional provision When making the judgement:
of PFRS  Management shall consider the following:
2. Retrospective
A. Requirements in other PFRSs dealing
application, in the
with similar transactions
absence of transitional
B. Conceptual Framework
provision
3. Prospective  Management may consider the following:
application, if A. Pronouncements issued by other
retrospective standard-setting bodies
application is B. Other accounting literature and
impracticable industry practices

Disclosure PAS 8 permits a change in accounting policy only

- Nature of change if the change:
- Reason for change (IFRS or a. Is required by a PFRS;
fair presentation) b. Results in reliable and more relevant
- Financial effect of change information

- For each line item affected

 Prospectively adjust
Changes in
Accounting Estimates (years of change and future years only)

Cumulative Catch up Method

Two Broad
OR
Methods
Spread Method

Disclosure
- Nature of change
- Financial effect

Omissions and misstatements in the financial

Prior Period Errors statements for one or more periods arising from a
failure to use or misuse of reliable information.

Errors
Occur as a result of mathematical mistakes,
mistakes in applying accounting policies,
misinterpretation of facts, fraud or oversight.

Shall be corrected retrospectively by adjusting

the opening balances of retained earnings and
affected assets and liabilities

Credits:

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