(Summary) Ind AS 8
Changes in Accounting Estimates and Errors
Objective is to prescribe the criteria for selecting and changing accounting policies.
- Accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates and corrections of errors
- For tax effects of corrections of prior period errors and retrospective adjustments apply Ind AS 12
i. Accounting Policies
|ii. Change in accounting estimates|
|iii. Ind AS||iv. Material Omissions or misstatements|
|v. Prior Period errors||vi. Retrospective Application|
|vii. Impracticable||viii. Prospective Application|
Accounting policies: are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements.
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.
Material Omissions or misstatements: of items are material if they could, individually or collectively, influence the economic decisions that users make on the basis of the financial statements. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or a combination of both, could be the determining factor.
Retrospective application: is applying a new accounting policy to transactions, other events and conditions as if that policy had always been applied.
- Apply specific Ind AS if Available for that transaction otherwise create policy by using appropriate judgement under Ind AS 8 which will result in relevant, reliable, neutral, prudent and complete FS.
- For similar transactions apply policies consistently unless Ind AS specifically permits application of different policies for similar transaction
- Change accounting policy if required by Ind AS or it will result in reliable and more relevant FS
- Change in accounting policies from Initial Application of Ind AS or voluntary change in policies shall be applied retrospectively, if practical. Give retrospective effective for prior periods as far back as is practical.
- If change in accounting policy is applied retrospectively then the entity shall adjust the opening balance of each affected component of equity for the earliest prior period presented.
- When it is not practical to apply new accounting policy retrospectively, because it cannot determine the cumulative effect of applying the policy to all prior period, apply the new policy prospectively from the start of the earliest period practicable.
- Uncertainty is an inherent characteristics of business activities. Many items in the FS require estimations which involve judgements. These estimations are revised periodically. This revision does not relate to prior periods and it is not the correction of an error. Such change in estimation shall be recognised prospectively by including it in P&L. To the extent that a change in an accounting estimate gives rise to changes in assets and liabilities, or relates to an item of equity, it shall be recognised by adjusting the carrying amount of the related asset, liability or equity item in the period of the change.
- A change in the measurement basis applied is a change in an accounting policy. When it is difficult to distinguish a change in an accounting policy & a change in an accounting estimate, the change is treated as a change in an accounting estimate.
- Errors can arise in respect of the recognition, measurement, presentation or disclosure. FS do not comply with Ind ASs if they contain either material errors or immaterial errors made intentionally. Material errors are sometimes not discovered until a subsequent period, and these prior period errors are corrected in the comparative information presented in the FS for that subsequent period.
- An entity shall correct material prior period errors retrospectively in the first set of financial statements approved for issue after their discovery except to the extent that it is impracticable to determine either the period-specific effects or the cumulative effect of the error
- Change in accounting estimation is not an error.
- An entity shall disclose the nature and amount of a change in an accounting estimate that has an effect in the current period or is expected to have an effect in future periods, except for the disclosure of the effect on future periods when it is impracticable to estimate that effect.
- Disclosures related to prior period errors
- In applying para 42, an entity shall disclose the following:
- the nature of the prior period error;
- for each prior period presented, to the extent practicable, the amount of the correction:
- for each financial statement line item affected; and
- if Ind AS 33 applies to the entity, for basic and diluted earnings per share;
- the amount of the correction at the beginning of the earliest prior period presented; and
if retrospective restatement is impracticable for a particular prior period, the circumstances that led to the existence of that condition and a description of how and from when the error has been corrected.