BAS-8

Accounting policies
Changes in Accounting Estimate
and Errors

Presented By :
Snehasish Barua, FCA

an independent correspondent member of

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 Objective and scope

 Selecting and applying accounting policies

 Accounting for changes in:
 Accounting policies
 Accounting estimates
 Corrections of material prior period errors
 Disclosure requirement

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 Accounting policies

 Accounting policies
 Specificprinciples, bases, conventions, rules and
practices applied by an entity
 In preparing and presenting financial statements

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 Selection and application
of accounting policies
 Accounting policy determined by
 Applying any specific standard or interpretation
 Considering any relevant implementation guidance
 In absence of specific standard or interpretation use
judgement to develop an accounting policy that results in
relevant and reliable information
 First, refer to standards and interpretations dealing with
similar and related issues and
 second, to framework
 Consider pronouncement of other setters or industry
practices if consistent with above
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Consistency of accounting policies

 Select and apply accounting policy consistently for

similar transactions, other events and conditions
 May adopt different policies
 When a standard or interpretation requires or
permits categorisation of items for which different
policies may be appropriate
 But accounting policy selected and applied
consistency to each category

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 Changes in accounting policies

 These are rare: only if required by statute/standard-setting

body/results in reliable and more relevant information.
 Adoption of new IFRS: follow transitional provisions of IFRS. If no
transitional provisions: retrospective application.
 Other changes in policy: retrospective application. Adjust opening
balance of each affected component of equity, ie as if new policy
has always been applied.
 Prospective application is not allowed unless it is impracticable to
determine the cumulative effect of the change.
 An entity should disclose information relevant to assessing the
impact of new IFRSs/IFRICs on the financial statements where
these have been issued but have not yet come into force.
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 Changes in estimates

 Estimates arise because of uncertainties inherent

within them, judgement is required but this does not
undermine reliability.
 bad debts, useful lives, expected pattern of
consumption of economic benefits of depreciable
assets and inventory obsolescence
 Effect of a change in accounting estimate should be
included in profit or loss in:
– Period of change, if change affects only current period, or
– Period of change and future periods, if change affects both
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 Changes in estimates

a change in the measurement basis applied is a change in

accounting policy, not a change in accounting estimate.

sometimes it is difficult to distinguish between a change in an

accounting estimate and accounting policy. A change in
accounting policy must be distinguished from a change in
estimate which is necessary to apply a specific policy. For
example, changes in estimates of useful lives and depreciation
methods are changes in accounting estimates. if it is not possible
to determine whether a change is a change in an estimate or
policy, the change should be treated as a change in accounting
estimate.
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 Errors

 Prior period errors

 Omission and misstatements for one or more
prior periods arising from a failure to use, or
misuse of, reliable information
 Such errors include
 The effects of mathematical mistakes in applying
accounting policies
 Oversights or misinterpretations of facts
 Fraud
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 Errors

 Prior period errors: correct retrospectively.

 This involves:
(a) Either restating the comparative amounts for the prior period(s)
in which the error occurred
(b) Or when the error occurred before the earliest prior period
presented, restating the opening balances of assets, liabilities and
equity for that period
so that the financial statements are presented as if the error had
never occurred.
 Only where it is impracticable to determine the cumulative
effect of an error on prior periods can an entity correct an
error prospectively.
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Questions

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 Contact Details

Snehasish Barua, FCA (ICAB), ACA (ICAEW)

Partner
Snehasish Mahmud & Co
Chartered Accountants
+8801819319319
snehasish@smac-bd.com
www.smac-bd.com

an independent correspondent member of

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