2. PAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors
Conceptual Framework & Accounting Standards
Learning Objectives
• Define the following and give examples: (1) Change in accounting
policy, (2) Change in accounting estimate, and (3) Error.
• Differentiate between the accounting treatments of the following:
change in accounting policy, change in accounting estimate, and
correction of prior period error.
3. OBJECTIVE AND SCOPE
• PAS 8 prescribes the criteria for selecting, applying,
and changing accounting policies and the
accounting and disclosure of changes in accounting
policies, changes in accounting estimates and
correction of prior period errors.
Conceptual Framework & Accounting Standards
4. ACCOUNTING POLICIES
• Accounting policies are “the specific principles,
bases, conventions, rules and practices applied by
an entity in preparing and presenting financial
statements.” (PAS 8.5)
• Accounting policies are the relevant PFRSs adopted
by an entity in preparing and presenting its financial
statements
Conceptual Framework & Accounting Standards
5. PFRSS
• Philippine Financial Reporting Standards (PFRSs) are
Standards and Interpretations adopted by the Financial
Reporting Standards Council (FRSC). They comprise the
following:
1. Philippine Financial Reporting Standards (PFRSs);
2. Philippine Accounting Standards (PASs); and
3. Interpretations
Conceptual Framework & Accounting Standards
8. • When it is difficult to distinguish a change in
accounting policy from a change in accounting
estimate, the change is treated as a change in an
accounting estimate.
• An entity shall change an accounting policy only if
the change:
1. is required by a PFRS; or
2. results to a more relevant and reliable
information about an entity’s financial position,
performance, and cash flows.
Conceptual Framework & Accounting Standards
9. EXAMPLES OF CHANGES IN
ACCOUNTING POLICY
Conceptual Framework & Accounting Standards
1. Change from the FIFO cost formula for inventories to the Average cost
formula.
2. Change in the method of recognizing revenue from long-term construction
contracts.
3. Change to a new policy resulting from the requirement of a new PFRS.
4. Change in financial reporting framework, such as from PFRS for SMEs to full
PFRSs.
5. Initial adoption of the revaluation model for property, plant, and equipment,
and intangible assets.
6. Change from the cost model to the fair value model of measuring investment
property.
7. Change in business model for classifying financial assets resulting to
reclassification between financial asset categories.
10. EXAMPLES OF CHANGES IN
ACCOUNTING ESTIMATE
1. Change in depreciation or amortization methods
2. Change in estimated useful lives of depreciable assets
3. Change in estimated residual values of depreciable assets
4. Change in required allowances for impairment losses and
uncollectible accounts
5. Changes in fair values less cost to sell of non-current assets held for
sale and biological assets
Conceptual Framework & Accounting Standards
11. ERRORS
• Errors include the effects of:
1. Mathematical mistakes
2. Mistakes in applying accounting policies
3. Oversights or misinterpretations of facts; and
4. Fraud
Conceptual Framework & Accounting Standards
