Learning unit 6: Accounting, policies, changes

in accounting estimates, errors and the effects

of changes in foreign exchange rates

6.1 Purpose of learning unit

Students should be able to apply the recognition and de-recognition criteria to an asset as
specified in the relevant IFRS standard, select a measurement basis that is applicable to an asset
as guided by the relevant IFRS standard and prepare general purpose financial statements in
accordance with IFRS for an entity. In addition, students should be able to develop and
communicate their ideas and opinions in well-formed arguments within an accounting and
related services context.
6.2 Assessment criteria

After completion of this learning unit, students should be able to:

• Recognise an item that meets the definition of an asset, a liability, equity, income or expenses
for inclusion in the statement of financial position or the statement(s) of financial performance.
• Derecognise from the financial statements an item that no longer meets the definition of an
asset and a liability.
• Evaluate the recognition and/or derecognition of an asset, a liability, equity, income or expenses
in a given scenario against the applicable IFRS standard.
• Indicate the measurement basis for an asset and a liability based on the applicable IFRS
standard.
• Evaluate the measurement basis for an asset or a liability in a given scenario against the
requirements of the applicable IFRS standard.
• Present and disclose assets within a selected framework and reporting boundary.
• Communicate clearly and concisely in a professional manner, appropriate to the audience and
situation.
• Apply word processing software skills (Word, Spreadsheets, Power point) and contemporary
communication channels (social media) within an accounting and related services context.

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 • Communicate and collaborate with others using a wide range of digital devices, technologies
and platforms (e.g., teams, discussion forums).
• Apply effective listening and discussion techniques to obtain and clarify relevant information.

A general discussion forum has been set up for each topic contained in learning unit 6 on the main
FAC3764 site and on your e-tutor site. It is strongly recommended that you post your questions and
comments on the forum as you work through the learning unit. Your lecturer and allocated e-tutor are
more than happy to assist you on your learning journey.

Please click HERE to go the forum for Accounting policies, changes in accounting estimates, errors and
the effects of changes in foreign exchange rates

Source: [Link]
documents-law-1790976992
6.3 Introduction

In learning unit 6 we will discuss and study the following IFRS standards:

• IAS 8, Accounting policies, changes in accounting estimates and errors

• IAS 21, The effects of changes in foreign exchange rates.

Each of the above standards will be discussed under individual topics in this learning unit.

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It is important to note that this is the first time that you are introduced to these concepts in your
accounting studies.

The Communication skills learned from the successful completion of CBC1501 (Communication
in Business Context) and CAS1501 (Perspectives on Accountancy) are regarded as presumed
knowledge and still apply to all your studies going forward. As communication forms an integral
part of the role of the accounting practitioner in business contexts, good communication skills
are essential. As a result, communication skills will form part of your FAC3764 journey.

Topic 6.1 of learning unit 6 discusses IAS 8, Accounting policies, changes in accounting
estimates and errors.
The objective of this topic is to prescribe the criteria for selecting and changing accounting
policies, together with the accounting treatment and disclosures of changes in accounting
policies, changes in accounting estimates and correction of errors. IAS 8 is intended to enhance
the relevance and reliability of an entity’s financial statements, and the comparability of those
financial statements over time with the financial statements of other entities.

Source: [Link]

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Study

Study chapter 26 in your prescribed textbook (Gripping GAAP). This chapter deals
with concepts and principles relating to accounting policies, estimates and errors.

Watch the video that differentiate between accounting policy and estimate changes and the
consequences of changes in accounting policy, estimates and errors.
[Link]
Activity 6.1

It is now time to test your IAS 8 knowledge, by completing the LexisNexis PassPlus online quiz.
Please click HERE to access the online quiz.

Can you distinquish between a change in accounting policy, a change in accounting estimate and an
error? Why is it important to distinquish between these different areas covered in IAS 8?

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 Change in
Change in
accounting Error
accounting policy
estimate

Change in the specific

principles, bases, Accountig estimates are Omissions from, and
conventions, rules and monetary amounts in misstatements in the
practices applied by an financial statements entity's financial
entity in preparing and that are subject to statements for one or
presenting financial measurement more periods.
statements. uncertainty. (IAS 8.5)
(IAS 8.5) (IAS 8.5)

Retrospective Restrospective
application by adjusting Prospective restatement by
the prior year figures application by correcting the
except to the extent that recognition,
recognising the effect
it is impracticable. measurement and
of the change in the
Prior, current and future current and future disclosure of amounts of
year figures will be periods. elements as if a prior
calculated by using the period error has never
new policy. occured.

Disclosure: Disclosure: Brief

Description of what description of what,
Disclosure: Brief
policy changed, effect on each line item
description of what and
explanation of why, and two years of
the effect on each line
effect on each line item, comparatives in the
item.
extra comparative year statement of financial
in the statement of position.
financial position.

Figure 6.1: Summary of IAS 8: Differences and accounting treatments, Evans, 2022
Activity 6.2

Now complete these additional comprehensive questions that is included within the blue
link below. We suggest that you answer these questions under assessment conditions. These
questions will help you to identify areas of weakness that you must pay attention to.

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Please note: Solutions will be provided at a later stage (to give you an opportunity to attempt
answering the questions first). Your answers to these questions must not be submitted to
your lecturer. You should compare your answers with the suggested solutions.
IAS 8 (Accounting policies, changes in accounting estimates and errors) Activity 6.2
(Questions)

Source: [Link]
1460444483

Topic 6.2 of learning unit 6 discusses IAS 21, The effects of changes in foreign exchange rates.
The key issues in accounting for the effects of changes in foreign exchange rates are to:

• determine the appropriate exchange rate to be used for the initial and subsequent recognition
of foreign currency transactions in the functional currency of the reporting entity
• recognise exchange differences arising from these transactions.

Watch the video that sumarises the principles involved in the effects of changes in foreign
exchange rates.
[Link]

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Study

Study chapter 20 of your prescribed textbook (Gripping GAAP) which contains further
information on the effects of changes in foreign exchange rates.
Take note of the following:

• Because of the SAICA syllabus exclusions of revaluations on depreciable assets, you can exclude
example 16 illustrating exchange differences applicable to assets that are measured, using the
revaluation model.
• Because of the SAICA syllabus exclusions, you can exclude section 4.3 detailing accounting for a
change in functional currency.

Can you determine the correct foreign exchange rate to apply to monetary and non-monetary
items on initial and subsequent measurement?

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 Initial measurement Subsequent measurement

•Translate foreign currency at •Monetary item: Retranslate to spot

spot rate on the transaction date rate on date of subsequent
for a monetary and non- measurement (subsequent
monetary item. reporting date or settlement date).
The gain or loss will be accounted
for in the statement of profit or loss
and other comprehensive income.

•Non-monetary item carried at cost:

No translation required. Carried at
historic exchange rate.

•Non-monetary item carried at fair

value: Retranslate to spot rate on
date that fair value is determined.
The gain or loss will be accounted
for as a fair value movement
according to the relevant standard.

Figure 6.2: Initial and subsequent measurement principles involving foreign currency
translations, Evans, 2022
Activity 6.3

It is now time to test your IAS 21 knowledge by completing the LexisNexis PassPlus online
quiz.
Please click HERE to access the online quiz.
Activity 6.5

Now complete these integrated comprehensive questions that is included within the orange

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link below. These questions will integrate the two topics included in this learning unit. It will
also incorporate aspects of previous learning units in these questions. We suggest that you
answer these integrated questions under assessment conditions. These integrated questions will
help you to identify areas of weakness that you must pay attention to.
Please note: Solutions will be provided at a later stage (to give you an opportunity to attempt
answering the questions first). Your answers to these integrated questions must not be
submitted to your lecturer. You should compare your answers with the suggested solutions.
Activity 6.5 Questions

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