PSAK 25

IAS 8
Vincent alvin 201850062
Nicolas 201850246
Agenda

3
Introduction
Objectives

1 Determine the criteria on choosing and changing of the financial

policies

2 Corrections of errors

3 Disclosure of changes in accounting policies

5
The achievement of the objective

Relevance and reliability of

financial statements

Comparability of financial
statements with the financial
statements of other entities and of
prior periods of the same entity
Key Concepts
Retrospective
Application Retrospective application is applying a
new policy to transactions, other events
and conditions as if that policy had always
been applicable

8
Retrospective
Restatement It is basically the after effect of
retrospective application on the prior
periods presented along the current year’s
financial statement

9
Prospective
Application Prospective application means applying
the changes on current and future periods
only. In the past, what’s done is done no
such alteration is required in the books of
the accounts

10
Impracticable
Applying Applying a requirement is impracticable
when the entity cannot apply it after
making every possible effort

11
Accounting Policies
What is accounting
policy Accounting policy is a principle, basic,
convension, rules and certain practice that
is applied by entity in preparation and
presentation of financial report

13
Reasons for change in accounting policies

For more true &

fair view

Change in Local
Legislation

Change in IFRS

14
 Retrospective
When a change in acc policy is spplied retrospectively, the entity
shall adjust the opening balances of each affected component of
equity for the earliest prior period presented and the other
comparative amounts disclosed for each prior period presented as
if the new acc policy had always been applied

Impracticable
When it is impracticable to determine the cumulative effect, at the
beginning of the current period, of applying a new accounting
policy to all prior periods, the entity shall adjust the comparative
information to apply the new accounting policy prospectively from
the earliest date practicable

Accounting Treatment of Change in Acc Policy

15
 - Nature of change

Disclosure - Description of transition provision if any

- For the current period and each prior period
Requirements presented, to the extent practicable, the amount
of adjustment :
of Change in 1. For each financial statement line item
affected
Acc Policy 2. Earnings per share - revised

16
Accounting Estimates
When an item of financial statements
cannot be measured precisely, it can
only be estimated. This is because of:

•Uncertainties inherent in the business

•Where judgement are involved
What are the
reasons for
estimation
 1 Bad debts

Where 2 Inventory obsolescence

Fair value of financial assets or

estimati 3 financial liabilities

The useful lives of, or expected pattern

on is
4 of consumption of the future economic
benefits embodied in, depreciable assets

Warranty obligations
required
5

6 Etc

19
 If changes occur in the circumstances
on which the estimate was based
When change in
1 As a result of a new information
acc Estimates
becomes 2 As a result of ne development
necessary??
3 More experience

20
 Asjusting the carrying amount of the related asset,
liability, or equity item in the period of change
recognizes a change in an accounting estimate

Example:
Management estimated that provision for doubtful debts up to 5%
of the total population of trade debts. However, upon identifying
the age of the trade debts, it revealed that bad debts are about
6.5% of total population of trade debts. Management immediately
recognizes the increase in bad debts expense in the book of
accounts

What is the recognition criterea of Change in

scc Estimates?

21
 If the effect of a change in estimate is immaterial
(as is usually the case for changes in reserves and
allowances), we do not disclose the alteration.

However, we disclose the change in the estimate if the

amount is material. Also, if the change affects several
future periods, like the effect on income from
continuing operations, net income, and per share
amounts.

Disclosure Required for Changes in accounting

Estimates

22
Errors
What are errors
They can be classified into 2
1.Prior period – Errors related
to prior reporting periods
2.Current period – Errors
related to current reporting
period

24
What are prior
period errors Failure to use or misuse of reliable information that was
available when financial statements for those periods
were authorized for issue

Failure to use or misuse if reliable information that

could reasonably be expected to have been obtained
and taken into account in the preparation of those
financial statements.

25
What are the examples of prior
period errors
Simple timeline

Effect of mathematical
mistakes Oversight Fraud

Mistakes in applying Misinterpretatioj of

accounting policies facts

26
What id the accounting treatment for rectification of errors

An entity shall correct material prior period errors retrospectively in

thr first set of financial statements authorized for issue after their
discovery by

1 Restating the comparative amounts by the prior period(s) in which

the error occurred

2 If the error occurred before the earliest prior period presented,

restating the opening balances of assets, liabilitie and equity for the
earliest prior period presented

27
Thank you!!!