IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Technical Summary
This extract has been prepared by IASC Foundation staff and has not been approved by the IASB.For the requirements reference must be made to International Financial Reporting Standards.

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

OBJECTIVE: To prescribe the criteria for selecting and changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates and corrections of errors. The Standard is intended to enhance the relevance and reliability of an entity’s financial statements, and the comparability of those financial statements over time and with the financial statements of other entities.

Accounting policies

Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements. When an IFRS specifically applies to a transaction, other event or condition, the accounting policy or policies applied to that item shall be determined by applying the IFRS and considering any relevant Implementation Guidance issued by the IASB for the IFRS.

In the absence of a Standard or an Interpretation that specifically applies to a transaction, other event or condition, management shall use its judgement in developing and applying an accounting policy that results in information that is relevant and reliable. In making the judgement management shall refer to, and consider the applicability of, the following sources in descending order:

(a) the requirements and guidance in IFRSs dealing with similar and related issues; and


(b) the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Framework.

An entity shall select and apply its accounting policies consistently for similar transactions, other events and conditions, unless an IFRS specifically requires or permits categorisation of items for which different policies may be appropriate. If an IFRS requires or permits such categorisation, an appropriate accounting policy shall be selected and applied consistently to each category.

An entity shall change an accounting policy only if the change:
(a) is required by an IFRS; or
(b) results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity’s financial position, financial performance or cash flows.

An entity shall account for a change in accounting policy resulting from the initial application of an IFRS in accordance with the specific transitional provisions, if any, in that IFRS. When an entity changes an accounting policy upon initial application of an IFRS that does not include specific transitional provisions applying to that change,or changes an accounting policy voluntarily, it shall apply the change retrospectively. However, a change in accounting policy shall be applied retrospectively except to the extent that it is impracticable to determine either the period-specific effects or the cumulative effect of the change.

Change in accounting estimate

The use of reasonable estimates is an essential part of the preparation of financial statements and does not undermine their reliability. A change in accounting estimate is an adjustment of the carrying amount of an asset or a liability, or the amount of the periodic consumption of an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities. Changes in accounting estimates result from new information or new developments and, accordingly, are not corrections of errors. The effect of a change in an accounting estimate, shall be recognised prospectively by including it in profit or loss in:
(a) the period of the change, if the change affects that period only; or
(b) the period of the change and future periods, if the change affects both.

Prior period errors

Prior period errors are omissions from, and misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:
(a) was available when financial statements for those periods were authorised for issue; and
(b) could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements.

Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud.

Except to the extent that it is impracticable to determine either the period-specific effects or the cumulative effect of the error, an entity shall correct material prior period errors retrospectively in the first set of financial statements authorised for issue after their discovery by:
(a) restating the comparative amounts for the prior period(s) presented in which the error occurred; or
(b) if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented.

Omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions of users taken on the basis of the financial statements.

Source: International Accounting Standards Board

Tips of Becoming a Certified Public Accountant

I have listed some of my simple ways of passing the CPA board exam. These were the things I did that somehow made me pass the board exam. I have subdivided it into two, the first one is about a person's manner and the next group is about study tools and techniques.

Here are my tips:

1. Have a good time management.

I made myself a study schedule and I followed it strictly. I always see to it to have enough time to study and time to rest and relax. Similarly, make a schedule of your activities and keep it balanced. Remember, 'All work and no play makes Jack a dull boy.'

2. Stay focused

It is true that there should be time to relax and unwind even during the review period, but most of your time must be to study. Remember, focus your mind to your goal--to be a CPA.

3. Study well and have best quality of study period.

It doesn't matter if you read ALL the Accounting books and didn't retain it in your head. What is more important is the best study quality. Know the test pointers and focus mainly on these. Also, study the basic and most importantly the standards.

4. Be humble and ask help.

If there are certain things that you don't understand or are not clear to you, be humble and ask help. Don't pretend that you understand ALL. but instead, ask help from reliable persons, like your professors, if you are confused even in the littlest accounting matter.

5. Be observant and resourceful.

Always know the latest review books. You don't have to buy all of it but you can always find ways to secure a copy of these (you may perhaps borrow from someone or from the library). Research and seek for previous actual exam questions. In certain cases, there are old exam questions which are repeated. The probability is 50:50. But there is nothing to lose.

6. Know your BEST time to study.

There are people who are nocturnal, others are diurnal. As for your case, know yourself. There are people who can memorize well or retain study materials on daytime and others prefer nighttime. KNOW YOURSELF. As for me, I prefer to study at night until dawn. Honestly, I am nocturnal.

Study Tips

7. Read, understand and take notes.

Read the accounting books not just those review books which are often summarized. If possible, read it more than once. Apply the concepts in problem-solving questions to test yourself if you've understand something. Take notes of what you've read so that you can read it some other time for simple recall.

8. Test yourself.

Study those review books and previous actual exam questions. But first of all, remember to read the standards and go back to the basic. Then, apply the concepts in certain theory or analytical questions. Answer the questions and explain to yourself why you come up with those answers. If confused, relax...just study that certain topic or seek others' help. Don't pressure yourself since it will hinder you from retaining the topic.

9. Good study tools usage.

As I've said, when reading certain topics, take down notes. Write it at the space of the books near that important key points. If possible, summarize those topics your OWN WAY. Read it wherever you go (if possible). Possible write it in a small index card. For those topics which requires memorization (formula, laws, standards) write it on 'post-it' memo pads (sticky notes) and put it in your room. Stick it on the wall where you can always see it. In my own personal experience, the capital budgetting formula were written on those sticky note pads and I posted it on the wall near my bed so that I can easily see it when i wake up.

10. Be inspired.

As for me, I always trust in God and I bear in mind that my family will be happy if I succeed.

Actually, i also did some techniques that others call 'DUMMIES TECHNIQUES'

Dummies' Technique that works( this is not accurate)

1. Color Coding Technique

I associate my study progress with colors. Before I study, I look at closely anything that is colored YELLOW.

Reason is, YELLOW, means caution. According to my review instructor, looking at this color can prepare the brain for retention. Just imagine the color yellow in traffic light. It prepares the drivers either to stop or go.

If I am tired of studying, I look at the color GREEN to relax my eyes

If taking down notes, I use different colors. Most importantly I use RED pen for items that confuses me.

2. Icons Technique

In writing notes, I draw icons that can give me a clue about that certain topic or accounting standard.

3. Desperados' Technique in answering questions.

According to my review instructor, in desperate situations we have no chose but to use this technique.

Elimination Technique-Since the exam is a multiple choice question, we can use this technique. If there are 4 choices, we have 25% in of getting the right answer. Still, understand and examine the question. Then, eliminate the very obvious wrong choices. Then choose the nearest choice based on what you know so far.

2.Over-the-top Technique-Here you just have to read and understand the questions. Sometimes the answers are just found in the questions itself and there is no need in solving it. (Examples are certain Management Services questions

Anyway, what matters most is to study well and have much preparation. Taking the CPA board exam is like going out of war. Obviously, we DON'T want to go to a battle with no weapon nor training. Similarly, in taking the exam, you have to be very well prepared and well equipped. Don't forget to be physically and mentally prepared. Be inspired, study well but stay healthy.

How I became a CPA (Certified Public Accountant)

It was May 2000 and everyone from my batch were busy enrolling to the course they desire for college. Some enrolled in Engineering, others in Medical Course and some in Commerce or Business-related field. As for me, I have not made up my mind which path to follow. My parents kept bugging me to enroll to any course. They gave me money to pay for the enrollment. So, finally, I decided to go to a school near our place and took an entrance exam. Luckily, I passed. Still, I don't have any idea what course to take. It is because deep in my heart I want to be an archaeologist or a writer. But the course are offered some other place so I have no choice but to choose any course from a nearby school's course list.

So, I went to the school nearby. My cousin who was also about to enter college enrolled in Bachelor of Science in Industrial Engineering. I thought 'Why not take this course? Almost everyone in our clan finished this degree.' I took an enrollment form for Industrial Engineering and completed the enrollment process. Still, something inside me is telling me not to proceed with this course. I remembered on of the guidance counselors told me "Don't ever bother enrolling in Engineering or Medical Course because your intelligence in those fields has a rating of just 1 out of 10" Her voice is echoing in my mind. I slept that night and woke up the next morning with a firm decision-not to proceed in an Engineering Course. I further decided to take an Accountancy course instead. I hurriedly went to the Registrar's office and got a course withdrawal form. Then, I finally decided to go to the Commerce Department and talked to the College of Commerce Dean. He assessed my grades and accepted me to enroll in Accountancy department.

That's it! It started my accounting learning process. During my four years as an Accountancy student, I studied well but never deprived myself from having recreation. I always keep things in balance. Through my effort and with God's help, I have finished the course with flying colors.

Having graduated the course as an honor student is not just a prestige but a challenge as well. Then, I took the review class. But I was slipping away from my goal and so the first time I took the board exam was a tragedy--I failed.

Then, I got a job in the city and worked there for six months as a Bookkeeper/Disbursement officer/collection officer. I saved money from that tedious multi-task job and so I decided to leave the job and made use of my money the better way. I took a review class and decided to stay very focused. Well, I don't have the heart to be a CPA but I thought to myself that an accountancy graduate will have much worth by passing the CPA licensure exam.

I enrolled in one famous review class in our city. The review instructors are equally good. They taught the subject in a detailed manner--such a good refresher course. After six months, I attend another review class in another university. Well the review class was truly awesome because the instructors were doing it in a fast-pace manner. After another six months, I finished the review and was about to take the exam. I paid for the exam fee and then after a month that was May 7,8,14,15 year 2006, were the scheduled exam dates. I was very relaxed in taking the exam and made sure about my answers. It was May 16 and I thought there was a release on CPA Board exam passers but there was nothing about it. Waiting for the exam result was scarier than taking the exam itself. I felt as if floating mid-air wherever I go. On May 17, I shiver more. I went out because I just can't calm down. When I went home, my sister told me that my friends called up and announced that I passed the board exam. Then my close friend Jane called up and congratulated me. I just can't believe that finally I succeeded. Then, everything else is history.