Ind AS 8 – Accounting Policies, Changes in Accounting Estimates, and Errors

1. Accounting policies are

  • the specific principles and procedures implemented by a company’s management team that are used to prepare its financial statements.
  • These include any accounting methods, measurement systems, and procedures for presenting disclosures.

Example: – Valuation of inventory using FIFO, Average Cost or another suitable basis as per IAS 2. … Basis of measurement of non-current assets such as historical cost and revaluation basis. Accruals basis of preparation of financial statements.

2. An Accounting policy can be changed only if the change:

1. is required by an Ind AS (Mandatory change); or

2. results in providing reliable and more relevant information about the transaction on the entity’s financial statement (Voluntary change).

It would be changed as retrospectively. It means adjust the opening balance of each affected component of equity for the earliest prior period presented and comparative amounts disclosed for each prior period presented as if the new accounting policy had always been applied.

3. CHANGE IN ACCOUNTING ESTIMATES: –

Accounting estimate is

  • an approximation of the amount to be debited or credited on items for which no precise means of measurement are available.
  • They are based on specialized knowledge and judgment derived from experience and training.
  • Examples of accounting estimates include: Useful life of non-current assets.

Difference between Accounting estimation and Accounting Policies

Particulars Accounting estimation Accounting Policies
Definition Approximate Amount Principal applied by Top management
Treatment  Prospectively Retrospectively

Disclosure of Change in accounting estimate: –

change in accounting estimate does not require the restatement of earlier financial statements, nor the retrospective adjustment of account balances. If the effect of a change in estimate is immaterial (as is usually the case for changes in reserves and allowances), do not disclose the alteration

4. PRIOR PERIOD ITEMS: –

prior period items are

  • income or expenses, which arise, in the current period as a result of errors or omission in the preparation of financial statements of one or more prior periods.

Disclosure of Prior Period Items: –

The nature and the relevant amount of prior period items should be

  • declared separately in the profit and loss statement.
  • Further it should be done in such a way that their implications on the current period’s profit and loss can be clearly understood.

ALLOW ABILITY OF PRIOR PERIOD EXPENSES: –

The expenditure incurred by a company will be allowed by the Income Tax Authorities if the expenditure is pertaining to the respective financial year. … Against this order the appellant company filed the present appeal before the Tribunal.

E.g.: – Forget to include borrowing cost in the cost of machinery.

5. ACCOUNTING TREATMENT OF PRIOR PERIOD TREATMENT: –

The entity must correct material prior period errors retrospectively in the first set of financial statements approved for issue after their discovery by restating:

a) the comparative amounts for the prior period presented in which the error occurred; or

b) the opening balance of assets, liabilities and equity for the earliest period presented, if the error occurred before the earliest prior period presented unless impracticable.

Immaterial prior period error can be corrected in the financial statement of the period in which it is discovered.

CHANGE IN Accounting ESTIMATE Versus PRIOR PERIOD ERRORS:-

Particulars Change in Accounting estimates Prior Period Errors
When there is Result from new information or new developments. Result from failure to use or misuse of available information.
Examples: Change in the useful life of depreciable asset. Forget to include borrowing cost in the cost of machinery.
Accounting treatment when there is Prospectively Retrospectively

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Qualification: CA in Practice
Company: harishankerand co
Location: GHAZIABAD, Uttar Pradesh, IN
Member Since: 05 Feb 2020 | Total Posts: 4
I am CA HARI SHANKER(Practicing CA Since 5 yrs) Consultant all Taxation and Accounting Matters View Full Profile

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