1. Section 10 Accounting Polices, Estimates and Errors
The IFRS for SMEs
Section 10
Accounting Polices, Estimates and Errors
By: Olonje
11/7/2018

2. Section 10 - Scope Section 10
Provides guidance for selecting and applying the accounting policies
Specifies accounting for
changes in accounting estimates
corrections of errors in prior period financial statements
By: Olonje
11/7/2018

3. Section 10 – accounting policies hierarchy
Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements.
If IFRS for SMEs addresses an issue, must follow IFRS for SMEs
If not;
choose policy that results in most relevant and reliable information by;
1st try to analogise from requirements in other sections
2nd use concepts/pervasive principles in Section 2
may also (not required) look to full IFRSs
By: Olonje
11/7/2018

4. Section 10-accounting policies hierarchy
Example 1:
A received a grant of Kshs. 500,000 from a non‑government development agency to set up farming operations in a specified rural area.
IFRS for SMEs does not specify how to account for a grant from a non‑government agency. However, it specifies how to account for government grants (Section 24 Government Grants).
By analogy, A should account for the grant received in accordance with Section 24.
By: Olonje
11/7/2018

5. Section 10- Consistency of Accounting policies
Select and apply its accounting policies consistently for similar transactions, other events and conditions
Change accounting policy only if;
is required by change to IFRS for SMEs (compulsory)
results in reliable and more relevant information (voluntary)
By: Olonje
11/7/2018

6. Section 10- Accounting policies
Example 2: A measures invest’s in associates at fair value. Because it cannot determine the fair value of its investment in associate B, it measures it using the cost model. A’s accounting policy is acceptable. Section 14-Investment in Associates; requires A choose cost, equity method, or fair value. If choose fair value still use cost for investments if impracticable to measure fair value reliably without undue cost or effort (see paragraph 14.10).
By: Olonje
11/7/2018

7. Section 10- Accounting policies
Example 3: A’s accounting policy = account for investments in associates at fair value and jointly controlled entities at cost. None of A’s investments are traded in a public securities market. A’s accounting policies are acceptable. Its policy for associates need not be the same as its policy for jointly controlled entities.
By: Olonje
11/7/2018

8. Section 10 – change in accounting policy
Change accounting policy if
if mandated, follow the transition guidance as mandated
if voluntary, retrospective application
impracticability exemption apply new accounting policy on the carrying value of assets or liabilities at the beginning of the earliest period
Disclosures
By: Olonje
11/7/2018

9. Section 10 – retrospective application
Example 4:
In 20X7 A voluntarily changed an accounting policy. The cumulative effect of the change is a decrease of Kshs. 100,000 in retained earnings at 1/1/20X7 (i.e. Kshs. 25,000 less profit for each of the past four years). The entity presents two years of comparative information.
Presented as a restatement of:
–retained earnings at 1/1/20X5—reduce by Kshs. 50,000
–profit 20X5 & 20X6—reduce by Kshs. 25,000 each
By: Olonje
11/7/2018

10. Section 10 – impracticability exemption
Example 5:
Facts same as Example 4. Except, it is impracticable to determine the individual period effects of the change of policy.
Presented as a restatement of:
–retained earnings at 1/1/20X7—reduce by Kshs.100,000 (no adjustment to 20X5 & 20X6)
–additional disclosures
By: Olonje
11/7/2018

11. Section 10 – accounting estimate
The use of reasonable estimates is an essential part of accounting.
Changes in accounting estimates result from new information or new developments and, accordingly, are not corrections of errors.
By: Olonje
11/7/2018

12. Section 10- Errors
Prior period errors are omissions from, and misstatements in, financial statements for prior periods arising from a failure to use, or misuse of, reliable information that:
was available when financial statements for those periods were authorised for issue, and
could reasonably be expected to have been obtained and taken into account in the preparation & presentation of those financial statements.
By: Olonje
11/7/2018

13. Section 10 – change in estimate
Account for changes in accounting estimates prospectively
Disclose
nature of change and the effect of the change on assets, liabilities, income and expense for the current period
if practicable, estimates of the effect of the change in one or more future periods
By: Olonje
11/7/2018

14. Section 10 – correcting errors
Correct prior period errors retrospectively (i.e. restate comparative figures)
Disclose
nature of the error
financial effects (each line-item)
an explanation if it is not practicable to determine the financial effects
By: Olonje
11/7/2018

15. Section 10 – change in estimate
Example 6: On 1/1/20X1 A buys yacht for Kshs. 1,000,000. Useful life = 30 years. Residual value = Kshs. 100,000. Straight‑line method of depreciation. At 31/12/20X9, as a result of research in 20X9, A reassessed the yacht as follows: useful life at 20 years from 1/1/20X1; residual value at nil; fair value at Kshs. 800,000; and straight-line depreciation as most appropriate method.
By: Olonje
11/7/2018

16. Section 10 – change in estimate
Example 6 continued: The reassessment of the yacht’s useful life and its residual value are changes in accounting estimates. The revised assessments are appropriately made on the basis of new information that arose from research performed in the current reporting period—20X9.
By: Olonje
11/7/2018

17. Section 10 – prior period error
Example 7: Same as Example 6, except, the research was publicly available in late 20X5. A believed the research to be valid but chose to ignore it until 20X9. A’s 20X5–20X8 financial statements include errors. The comparative figures in its 20X9 financial statements must be restated to correct the effects of the prior period errors [if material].
By: Olonje
11/7/2018