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2023 IAS 8 Notes

IAS 8 outlines the definitions and guidelines for accounting policies, changes in accounting estimates, and the correction of errors in financial statements. It emphasizes the importance of consistency in applying accounting policies and provides methods for accounting changes either retrospectively or prospectively. The document also highlights the need for disclosures related to changes in accounting policies and estimates, as well as prior period errors.

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19 views2 pages

2023 IAS 8 Notes

IAS 8 outlines the definitions and guidelines for accounting policies, changes in accounting estimates, and the correction of errors in financial statements. It emphasizes the importance of consistency in applying accounting policies and provides methods for accounting changes either retrospectively or prospectively. The document also highlights the need for disclosures related to changes in accounting policies and estimates, as well as prior period errors.

Uploaded by

Fadzie Kunze
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors

1. Definitions

a) Accounting Policies are specific accounting procedures adopted by an entity in preparing and
presenting financial statements. Entities select accounting policies from given alternative
accounting treatment of transactions and events.

Examples of accounting policies:

 Use of FIFO as a cost formula for valuing stock.


 Measuring PPE at cost.

b) A change in accounting estimate – as per standard

Examples of accounting estimates

 Allowances for credit losses


 Inventory obsolescence
 The fair value of financial assets or financial liabilities
 The useful lives of, or expected pattern of consumption of the future economic benefits
embodied in depreciable assets
 Warranty obligations
c) Prior period errors as per standard

2. Selection and application of accounting policies


 Two key guidelines in selecting and application of accounting policies – refer to standard

3. Consistency in use of an accounting policy


 Consistency to be applied as stipulated in the standard.

4. When to apply a change in an accounting policy


 Two key guide lines – refer to the standard

5. Methods of Applying changes in accounting policies, accounting estimates and in


correction of errors
 Retrospectively – refer to the standard for the meaning
 Prospectively – refer to the standard for the meaning

Description of change How the change is accounted for


Changes in Accounting Policy Retrospectively
Change in accounting policy necessitated by a As per transitional provisions of the standard or
new standard interpretation
Correction of Errors Retrospectively
Changes in Estimates Prospectively

6. Disclosures relating to changes in accounting policies


 Refer to the standard
7. Disclosures relating to changes in accounting estimates
 Refer to the standard
8. Disclosures relating to prior period
 Refer to the standard

Exercise

Siphilasonke Ltd recently noticed that a machine it bought two years ago was incorrectly measured
from the time it was recognised as an asset. The transportation cost for bringing the machine into
the business premises was erroneously omitted.

Required

Explain the accounting treatment of the above error in terms of IAS 8: Accounting policies,
changes in accounting estimates and errors.

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 that asset or liability.

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