What are the limitations for the retrospective restatement of prior period errors?
When a Standard or an Interpretation specifically applies to a transaction, other event or condition, the accounting policy or policies applied to that item must be determined by applying the Standard or Interpretation and considering any relevant Implementation Guidance issued by the IASB for the Standard or Interpretation. [IAS 8.7] Show
In the absence of a Standard or an Interpretation that specifically applies to a transaction, other event or condition, management must use its judgement in developing and applying an accounting policy that results in information that is relevant and reliable. [IAS 8.10]. In making that judgement, management must refer to, and consider the applicability of, the following sources in descending order:
Management may also consider the most recent pronouncements of other standard-setting bodies that use a similar conceptual framework to develop accounting standards, other accounting literature and accepted industry practices, to the extent that these do not conflict with the sources in paragraph 11. [IAS 8.12] Consistency of accounting policiesAn entity shall select and apply its accounting policies consistently for similar transactions, other events and conditions, unless a Standard or an Interpretation specifically requires or permits categorisation of items for which different policies may be appropriate. If a Standard or an Interpretation requires or permits such categorisation, an appropriate accounting policy shall be selected and applied consistently to each category. [IAS 8.13] Changes in accounting policiesAn entity is permitted to change an accounting policy only if the change:
Note that changes in accounting policies do not include applying an accounting policy to a kind of transaction or event that did not occur previously or were immaterial. [IAS 8.16] If a change in accounting policy is required by a new IASB standard or interpretation, the change is accounted for as required by that new pronouncement or, if the new pronouncement does not include specific transition provisions, then the change in accounting policy is applied retrospectively. [IAS 8.19] Retrospective application means adjusting the opening balance of each affected component of equity 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. [IAS 8.22]
Disclosures relating to changes in accounting policiesDisclosures relating to changes in accounting policy caused by a new standard or interpretation include: [IAS 8.28]
Financial statements of subsequent periods need not repeat these disclosures. Disclosures relating to voluntary changes in accounting policy include: [IAS 8.29]
Financial statements of subsequent periods need not repeat these disclosures. If an entity has not applied a new standard or interpretation that has been issued but is not yet effective, the entity must disclose that fact and any and known or reasonably estimable information relevant to assessing the possible impact that the new pronouncement will have in the year it is applied. [IAS 8.30] Changes in accounting estimatesThe effect of a change in an accounting estimate shall be recognised prospectively by including it in profit or loss in: [IAS 8.36]
However, 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 is recognised by adjusting the carrying amount of the related asset, liability, or equity item in the period of the change. [IAS 8.37] Disclosures relating to changes in accounting estimatesDisclose:
ErrorsThe general principle in IAS 8 is that an entity must correct all material prior period errors retrospectively in the first set of financial statements authorised for issue after their discovery by: [IAS 8.42]
However, if it is impracticable to determine the period-specific effects of an error on comparative information for one or more prior periods presented, the entity must restate the opening balances of assets, liabilities, and equity for the earliest period for which retrospective restatement is practicable (which may be the current period). [IAS 8.44] Further, if it is impracticable to determine the cumulative effect, at the beginning of the current period, of an error on all prior periods, the entity must restate the comparative information to correct the error prospectively from the earliest date practicable. [IAS 8.45] Why is retrospective treatment of a change in accounting estimated prohibited?Why is retrospective treatment of a change in accounting estimate prohibited? Change in accounting estimate is a normal recurring correction or adjustment which is the natural result of the accounting period. The retrospective treatment for any type of presentation treatment for any type of presentation is not allowed.
What is differences between retrospective and prospective application of changes in accounting policies and estimates?In other words, retrospective will effect presentation of financial statements for previous periods. While prospective means implementation new accounting policies for transaction, event, or other circumstances after new accounting policies or estimation has been implemented.
What is retrospective application of a change in accounting policy?Retrospective application is applying a new accounting policy to transactions, other events, and conditions as if that policy had always been applied.
What are the causes of prior period errors?A prior period error is an omission from, or a misstatement of, prior-period financial statements. Such an error must have been caused by the failure to use, or the misuse of, information that was available when the financial statements were authorized for issuance and that could be expected to have been obtained.
|