Accounting Policies,
Changes
in Accounting Estimates,
and Errors
Philippine Accounting Standards (PAS) 8
Learning Objectives
• Define the following :
1) Change in accounting police,
2) Change in accounting estimate, and
3) Error
• Differentiate between the accounting treatments of the
following: change in accounting policy, change in
accounting estimate, and corrcction of pprior period error.
Objective and Scope
PAS 8 prescribe the criteria for selecting ,
applying, and changing accounting policies and the
accounting and disclosure of changes in accounting
policies, changes in accounting estimates and
correction of prior period errors.
Accounting Policies
• Accounting policies are “the specific principles, bases,
conventions, rules and practices applied by an entity in
preparing and presenting financial statements.” (PAS 8.5)
• Accounting policies are the relevant PFRS adopted by the
entity in preparing and presenting its financial statements
Guidance in Selecting
Accounting Policies
1. PFRSs
2. Judgment
When making the judgment:
Management shall consider the following:
a. Requirements in other PFRS dealing with similar transactions
b. Conceptual Framework
Management may consider the following:
a. Pronouncements issued by other standards setting bodies
b. Other accounting literature and industry practices
Changes in Accounting Policies
• PAS 8 permits a change in accounting policy only if the
change:
a. Is required by a PFRS; or
b. Results in reliable and more relevant information
Accounting for changes in
Accounting Policies
Changes in accounting policies are accounted for using the
following order of priority:
1. Transitional Provision in a PFRS, if any
2. Retrospective application, in the absence of a
transitional provision
3. Prospective application, if retrospective application is
impracticable
Retrospective Application
Retrospective application means adjusting the
opening balance “of each affected component of equity
(retained earnings) for the earliest prior period presented
and the other comparative amounts disclosed for each prior
period presented as if the new accounting policy had always
been applied (PAS 8.22)
Prospective Application
• Prospective application means recognizing the effected of
the change in profit or loss, either in:
a. The period of change
b. The period of change and future period of both are affected
Note: The beginning balance of retained earning and the previous
financial statement are not restated.
Change in Accounting Estimates
• A change in accounting estimates is an adjustment of the
carrying amount of an asset or a liability, or the amount of
the periodic assumption of an asset, that results from the
assessment of the present status of and expected future
benefits and obligation associated with assets and
liabilities
• Changes in accounting estimates result from a new
information or new development and accordingly are not
corrections of errors.
Examples of Changes in
Accounting Estimates
• Change in depreciation or amortization methods
• Change in estimated useful lives or depreciable assets
• Change in estimated residual values of depreciable assets
• Change in required allowances for impairment losses and
uncollectible accounts
• Changes in fair values less cost to sell of non-current
assets held for sale and biological assets
Accounting for Changes in
Accounting Estimates
Changes are accounted for by prospective application
Prospective application means recognizing the effected of
the change in profit or loss, either in:
a. The period of change
b. The period of change and future period of both are affected.
Errors
Errors include:
1. Mathematical mistakes
2. Mistakes in applying accounting policies
3. Oversights or misinterpretations of facts; and
4. Fraud
Errors
Financial statements do not comply with PFRS if
they contain either material errors or immaterial errors
made intentionally to achieve particular presentation of
an entity’s financial position, financial performance or
cash flows. (PAS 8.41)
Classification of errors:
a. errors of commission
b. errors of omission
Types of errors accrdg. to period of
occurrence
Type of Error Accounting Treatment
Current period errors
• During the current period
• After the current period before the By Correcting Entries
financial statements were
authorized for issue
Prior Period Errors By Retrospective
• During the current period
• After the current period but Restatement
before the financial statements
were authorized for issue
Retrospective Statement
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.
Retrospective Restatement vs
Retrospective Application
Retrospective Retrospective
Restatement Application
• Correcting a prior period • Applying a new accounting
error s if the error had policy as if the policy had
never occurred always been applied.
SUMMARY
SCOPE DESCRIPTION ACCTG. TREATMENT EFFECT OF
ADJUSTMENT
CHANGE IN Change in a. Transitional On the beginning
ACCOUNTING measurement basis provision balance of retained
POLICY b. Retrospective earnings, if
application accounted for
c. If (b) is retrospectively
impracticable,
prospective
application
CHANGE IN Change in the Prospective In profit or loss of
ACCOUNTING realization of application current period or
ESTIMATE expected inflow (or current and future
outflow) of periods, if the
economic benefits change affect both
from assets (or
liabilities)
CORRECTION Misappropriation of a. Retrospective On the beginning
OF PRIOR principles, oversight restatement balance of retained
THANK
YOU!!
Aga-id, Pridhel A. Dawdaw, Daisy B. Dugayon, Glaiza B.