Financial Accounting II Lecture 36

Statement of Changes in Equity Statement of changes in equity shows the movement in the elements of equity during the reporting period.

Statement of Changes in Equity – IAS 1 An entity shall present a statement of changes in equity showing on the face of the statement: a. Profit or loss for the period;

Statement of Changes in Equity – IAS 1 b. Each item of income and expense for the period that, as required by other standards or interpretations, is recognized directly in equity, and the total of these items c. Total income and expense for the period (calculated as sum of a and b), showing separately

Statement of Changes in Equity – IAS 1 d. The total amounts attributable to equity holders of the parent and to minority interest; and e. For each component of equity, the effects of changes in accounting policies and corrections of errors recognized in accordance with IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”

Statement of Changes in Equity – IAS 1 An entity shall also present, either on the face of the statement of changes in equity or in the notes: a. The amount of transactions with equity holders acting in their capacity as equity holders, showing separately distributions to equity holders;

Statement of Changes in Equity – IAS 1 b. The balance retained earnings (i.e. accumulated profit or loss) at the beginning of the period and at the balance sheet date, and the changes during the period; and

Statement of Changes in Equity – IAS 1 c. A reconciliation between the carrying amount of each class of contributed equity and each reserve at the beginning and the end of the period, separately disclosing each change.

IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors This standard is applied in selecting and applying accounting policies, and accounting for changes in accounting estimates and corrections of prior period errors.

Selection and Application of Accounting Policies – IAS 8 When a Standard or an Interpretation specifically applies to a transaction, other event or condition, the accounting policy or policies applied to that item shall be determined by applying the Standard or Interpretation and considering any relevant Implication Guidance issued by IASB for the standard or interpretation.

Selection and Application of Accounting Policies – IAS 8 In the absence of a Standard or an Interpretation that specifically applies to a transaction, other event or condition, management shall use its judgment in developing and applying an accounting policy that results in information that is:

Selection and Application of Accounting Policies – IAS 8 a. Relevant to the economic decision making needs of the user; and b. Reliable, in that the financial statements;

Selection and Application of Accounting Policies – IAS 8 Represents faithfully the financial position, financial performance and cash flow of the entity; Reflects the economic substance of transactions, other events and conditions, and not merely the legal form; Are neutral, i.e. free from bias; Are prudent; and Are complete in all material respects.

Consistency of Accounting Policies – IAS 8 An entity shall select and apply its accounting policies consistently for similar transactions,

Consistency of Accounting Policies – IAS 8 Other events and conditions, unless a Standard or an Interpretation specifically requires or permits categorization of items for which different policies may be appropriate.

Consistency of Accounting Policies – IAS 8 If a standard or an interpretation requires or permits such categorization, an appropriate accounting policy shall be selected and applied consistently to each category.

Changes in Accounting Policies – IAS 8 An entity shall change an accounting policy only if the change: Is required by a standard or an interpretation; or

Changes in Accounting Policies – IAS 8 Results in financial statements providing reliable and more relevant information about the effects of transactions, other events or contributions on the entity’s financial position, financial performance or cash flows.

Changes in Accounting Policies – IAS 8 The following are not changes in accounting policies: The application of an accounting policy for transactions, other events or conditions that differ in substance from those previously occurring; and

Changes in Accounting Policies – IAS 8 The application of a new accounting policy for transactions, other events or conditions that did not occur previously or were immaterial.

Changes in Accounting Policies – IAS 8 The initial application of a policy to revalue assets in accordance with IAS 16 “Property Plant and Equipment” or IAS 38 “Intangible Assets” is a change in accounting policy to be dealt with as revaluation in accordance with IAS 16 or IAS 38, rather than in accordance with this Standard.