1. CHANGES IN ACCOUNTING ESTIMATES
IAS 8
ACCOUNTING POLICIES,
CHANGES IN ACCOUNTING ESTIMATES
AND
ERRORS

2. What is IAS 8 meant for How to select Accounting policies
How to change Accounting policies
Accounting and disclosure aspects on
(a) Change in Accounting policies
(b) Change in Accounting estimates
© Prior period errors
But disclosure on Accounting policies is covered by IAS 1- Presentation of Financial Statements

3. How is an Accounting Policy IFRS compliant
When the Accounting policy is in compliance of the IFRS, which is relevant to the transaction or event
When no IFRS is applicable, the policy must adhere to the basic principles laid down in the “framework” and must result in reliable and relevant information for the economic use of users.
When no IFRS is in place
(a) Guidance issued by IFRS on similar or related transactions or
(b) Standards issued by other standard setters, provided they are consistent with the IFRS frame work
also can be used

4. Is departure from IFRS always a matter of noncompliance
Only material items( in terms of volume or value) need to be IFRS compliant.
Any departure, the effect of which ,would have influenced the decision making of the user of the financial statement is, material.
Even non material departures if done only to achieve a particular result or presentation is not permissible

5. Can the policy be different for different types of transactions
Basic principle is that uniform policy be consistently used for similar transactions , for eg- accounting of fixed assets, valuation of inventory etc..
Certain IFRSs allow different options in the measurement and recognition of specified transactions . In such cases adoption of different policies for different categories with in those similar transactions is ,allowed.
For eg- land and buildings followed revaluation method and other assets followed historical cost

6. When can the accounting policy be changed
When an IFRS requires a policy change or
When the management feels that reliable and more relevant information would be presented with a changed Accounting policy

7. New kind of transactions
X ltd , was using electricity generated from captive plant for its steel plant and was charging Rs 2.00 per unit as transfer pricing charge. No revenue was booked on account of power .Total cost of power generation was charged as cost of production . The company started selling power in the current year at Rs 3.00 per unit to SEB and started charging proportionate cost to Power division. Is this a change of policy
No .The transaction of power sales in substance is different from earlier ones. So identification of associated costs and its accounting becomes a new event although these costs were being incurred even in past.

8. Accounting requirements on change in accounting policy
If change is to comply with initial application of an IFRS, apply transition provisions in that IFRS
If no transition provisions in IFRS or if change is voluntary, then retrospective application
If retrospective application impracticable, effect the change from earliest possible date
If that too is not practicable, then prospective application

9. How is retrospective application
Retrospective application requires finding out period specific effect of change in each line item including components in equity
Figures for all the years are reworked as if the changed policy was in place right from beginning and arrive at the changed opening balances in the comparatives.
Minimum three balance sheets and two income statements are to be presented in the case of change as per IAS 1
Balance sheets for Current year , previous year and of earliest possible date on which change effected are to be presented.

10. Adoption of revaluation method
A Ltd decided to change the accounting for fixed assets and intangible assets from carrying cost method to Revaluation method. How is IAS 8 applicable here.
It is a change of accounting policy .Yet it has to be dealt under IAS 16 and IAS 38 as applicable for revaluation.
Fair value on the date of revaluation less subsequent accumulated depreciation be presented in balance sheet. Revaluation surplus goes to OCI part. But revaluation loss charged to separate income statement
Depreciation and remaining useful life be reassessed every year and change in depreciation is a change of estimate with in IAS8 , unlike in AS 5 .

11. Method of depreciation changed
X Ltd decided on to change the method of depreciation from “SLM” to “No of units produced” in the case of plant machinery as the management believes it as more representative of the economic affairs. Is this a change of accounting policy . How to account for it.
Unlike in AS 6 and AS 5, change of method of depreciation is mere change of estimate as per IAS 16 and IAS 8. Therefore this is not a change of accounting policy.
Therefore future depreciation only will under go changes

12. Accounting policy changed to comply with IFRS
Presentation of employees retirement liabilities was changed to show present value of obligation and fair value of corresponding asset separately in liabilities and asset side respectively (as they were not plan assets), instead of netting them off.
This change is in order to comply with IAS 19. But it is not for initial application and therefore transitory provisions are not applicable.
Therefore the policy change is in order to rectify an incorrect policy followed thus far.
There retrospective change is necessary here by restating the comparatives.

13. Voluntary change
Policy on allocation of Staff costs amongst various profit centers and projects was changed to present more relevant and reliable financial information to users of financial statements. The change has significantly increased the operating profit of the current year . It is not practical to estimate the effect of the change in the earlier years, according to the management.
IAS 8 requires the comparatives of the previous years be changed , after giving effect to the impact of the change , to each affected line item, right from the beginning.
In the event of impracticability prospective application be made from the earliest possible date. Reasoning of impracticability be disclosed. The case in discussion is unlikely to have an impracticable situation for past data collection.

14. Earlier application of IFRS
Before the effective date , an IFRS was applied . Transition provisions were not followed (that required adjustment to retained earnings for the past effect of difference in liabilities). It was considered as a voluntary change ,and stated the reason that it is not practical to find out the year wise impact of change in the prior period. Prospective application was made.
This is not correct according to IAS 8 .Earlier application of IFRS is not voluntary application.
Transition provisions in the IFRS is applicable

15. Policy change due to statutory needs
An accounting policy was to be changed in order to comply with regulatory requirement.
“Framework” prescribes that the statutory requirements shall not affect financial statements unless other users are benefited by such changes. It has to be assumed that all are benefited by the change.
Unlike in AS 5, IAS 8 does not envisage a change in policy on account of statutory needs.
Yet this has to be considered as a voluntary change, in view of the guidance in ‘Framework’

16. Disclosure if the change necessitated by IFRS
Title of IFRS and transitional provisions
Nature of change in Accounting policy
Description of transitional provisions and effect if any on future results
Quantitative details of changes in line items as a result of policy change including EPS impact
Adjustment effect relating to prior period
Retrospective application if impractical, those circumstances and description regarding the date from which change effected

17. Disclosure if the change is voluntary
Nature of change in Accounting policy
How does the change present reliable and more relevant information
Quantitative details of changes in line items as a result of policy change including EPS impact for current period and each previous period presented
Adjustment effect relating to periods prior to the one presented
Retrospective application if impractical, those circumstances and description regarding the date from which change effected

18. Disclosure on IFRS not yet effective
IFRS issued but not yet effective and not yet applied be disclosed with its title , nature, date of application, date of proposed implementation
Likely impact when it would be implemented

19. How is a change in accounting policy different in IFRS regime
AS 5 does not require restatement of comparatives
Material impact if any and its adjustment be shown in the current year financials
Disclosure requirements are detailed in IAS 8

20. Change of estimate
It is the result of certain new information which was not considered when the estimates were made originally .
Therefore they are not any errors
A change on the basis of measurement is not any change of estimate it is a change in policy ( except in case of depreciation where IAS 16 considers it as an estimate change)

21. Change in estimate or change of policy
Warrantee provisions used to be reckoned at 2% of the unexpired warrantees. In the event of high incidence of claims, it was revised to 3% from FY 2008 onwards.
Change in measurement basis is a change in Accounting policy
Here the warranty provisions used to be made on estimated basis and the revision was the result of new circumstances
When there is difficulty to distinguish between change in policy and change in estimate , it is considered as change in estimate
So it requires to be effected prospectively in the books

22. How to give effect to change in estimate
Effect of change in assets, liabilities or equity to be made in the carrying amount of the respective items in the period of change
Effect of revenue in the income statement of the period of change and if it affects the future , in all those future periods.

23. Disclosure on change in estimate
Nature and quantitative effect of change in estimate in current period and for future
If its impracticable to estimate future effect, disclosure to that effect

24. How is change in estimate different under IFRS
No significant difference

25. Errors
Errors can be in measurement , recognition, presentation or disclosure
Material errors make financial statement non compliant with IFRS
Non material errors intentionally made to achieve a particular presentation also is non compliant with IFRS

26. How are material prior period errors rectified
Material prior period items be corrected by restating the financial statement of the year , in which the error occurred
If the error pertains to other periods than the earliest period presented in the comparatives, change the opening balances of all line items affected by such errors.

27. What if retrospective restatement is impracticable
If period specific effects of a past error cannot be determined, then opening balances of assets liabilities and equity for the earliest period possible, be restated
If restatement of opening balances of current period is impracticable, restate the effect of rectification prospectively from earliest date possible

28. Should the rectification of error affect current year profit
No. IAS 8 does not prescribe any adjustment in the current year profit for past period errors. Only restatement of comparatives is necessary
However in AS 5 prior period items are taken to current year profit and loss account and separately shown.
As per AS 5 appropriate disclosure is warranted.

29. Erroneous application of an accounting policy
It was detected that an accounting policy was incorrectly applied for many years. Management finds it impracticable to find out the impact in opening balances .Management has decided to apply the change prospectively and disregard the cumulative effect in the assets, liabilities and equity till the date of change.
IAS 8 allows such a step , provided the management discloses the circumstances and other details of the impracticability, that they encounter

30. Erroneous Inventory valuation
X Ltd detected during inventory valuation as on that sales recognized in for which stocks amounted to Rs L were appropriated but not delivered at the instruction of buyer was reckoned as part of inventory as on Tax rate is 30%
Rectification while presenting financials of , requires restatement of financials of and
06-07
07-08
08-09
Inventory down Rs 10.00L
Consequential effect in this yr
No effect except carrying correct opening stock, reserves etc.. Carried to this year
Tax liability down Rs 3.00 L
Reserves down Rs 7.00 L

31. Estimate error or past period error
A loss was provided against a contingent event which was found to be short materially in the subsequent period.
This is more of an estimation error rather than an omission or oversight
Therefore correction in the current period is possible

32. Disclosure on past errors
Nature of prior period error
Quantitative year wise break up of the error effect including that in EPS
Amount of correction in the beginning of the earliest prior period
Circumstances of impracticability if restatement not done

33. Provisions against receivables no longer required
Reversal of provision is the result of change of estimate.
Impact has to be in current year profit
Whether it has to be an income or adjustment against current year provision in the balance sheet depends on management policy .
Showing as many material items as separate line items in Income statement is allowed by IAS 1
Yet, more practical way is to set off against current year expenses

34. How is treatment of prior period error different under IFRS
AS 5 prescribes adjustment in current year profits, but separately
IAS 8 requires restatement of comparative data, and no adjustment to current year profit
Disclosure requirements in IAS 8 detailed

35. Thank you
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