IFRS

1. .
IAS 8
Accounting Policies, Changes in
Accounting Estimates
and Errors

2. Overview
 OBJECTIVE
 SCOPE
 DEFINITIONS
 ACCOUNTING POLICIES
 Selection and application of accounting policies
 Consistency of accounting policies
 Changes in accounting policies
 Disclosure of accounting policy
 CHANGES IN ACCOUNTING ESTIMATES
 Disclosure of Change in accounting estimates
 ERRORS
 Disclosure of prior period errors

3. OBJECTIVE
 .
the Standard is to prescribe the
criteria for selecting and changing
accounting policies, together with
the accounting treatment and
disclosure of changes in
accounting policies, changes in
accounting estimates and
corrections of errors.

4. SCOPE
For all Accounting polices, change in
accounting estimates and errors

5. Definitions
-
Accounting
policies :
are the specific principles, bases, conventions,
rules and practices applied by an entity in preparing
and presenting financial statements.
A change
in
accounting
estimate
is an adjustment of the carrying amount of an asset or a
liability, or the amount of the periodic consumption of
an asset, that results from the assessment of the
present status of, and expected future benefits and
obligations associated with, assets and liabilities.
Changes in accounting estimates result from new
information or new developments and, accordingly, are
not corrections of errors.

6. continued
: • are omissions from, and misstatements in, the entity’s
financial statements for one or more prior periods arising
from a failure to use, or misuse of, reliable information
Prior period errors
• is applying a new accounting policy to transactions, other
events and conditions as if that policy had always been
applied.
Retrospective
application
• is correcting the recognition, measurement and disclosure
of amounts of elements of financial statements as if a prior
period error had never occurred.
Retrospective
restatement
• Applying a new accounting estimates for future event and
transactions
Prospective
Application

7. Accounting Policies
 -
When an IFRS specifically applies to a transaction, other
event or condition, the accounting policy or policies
applied to that item shall be determined by applying the
IFRS.
Selection and application
of accounting policies

8. Cont.
.
In the absence of an IFRS 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:

9. Consistency of accounting
policies
 .

10. Changes in accounting policies
 An entity shall change an accounting policy only if the change:
is required by an IFRS
is required by statute
is required by an accounting standard setting body
Results in reliable and more relevant information

11. continued
.
The
following
are not
changes in
accounting
policies:
(a) Adopting an accounting policy
for a new type of transaction.
(b) The application of a new
accounting policy for transactions,
other events or conditions that did
not occur previously or were
immaterial.

12. continued
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A change in
accounting
policy must be
applied
retrospectively
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13. Disclosure of accounting
policy
The following will be disclosed
(a) the title of the IFRS
(b) reasons for change
(c) the nature of the change in accounting policy;
(d) the amount of the adjustment
(e) the circumstances impracticability of retrospective
application if any

14. CHANGES IN ACCOUNTING
ESTIMATES
 .
• (a) bad debts;
• (b) inventory obsolescence;
• (c) the useful lives
• (d) warranty obligations
• ( e) Fair value
As a result of the uncertainties inherent in business activities
estimates may be required for

15. continued
 .
An estimate may need
revision if changes occur
in the circumstances on
which the estimate was
based or as a result of
new information or more
experience.
Changes in
accounting
estimates applied
prospectively.
The effect of a
change in an
accounting
estimate should
be included in
profit or loss.

16. continued
 A change in the measurement basis applied is a change in
an accounting policy, and is not a change in an accounting
estimate.
 When it is difficult to distinguish a change in an
accounting policy from a change in an accounting
estimate, the change is treated as a change in an
accounting estimate.

17. Disclosure of Change in
accounting estimates
The following will be disclosed
(a) the nature of the estimate
(b) the amount of the estimate
(c) If it is impracticable to estimate the amount of the effect in
the future periods, the entity shall disclosed the fact.

18. Errors
Errors can arise in respect of the recognition,
measurement, presentation or disclosure of elements
of financial statements.
 Prior period error must be applied retrospectively.
 The effect of prior period error should be included in
profit or loss.

19. Disclosure of prior
period errors
The following will be disclosed
(a) the nature of the prior period error
(b) the amount of the correction for each line item of the
financial statement
(c) the amount of the correction at the beginning of the earliest
prior period presented
(d) the circumstances impracticability of retrospective
application if any

20. Thank You

21. Questions and
Discussion

22. Case study 1
 Facts
(a) ethio telecom changed its accounting policy in 2017 with respect to the valuation of inventories. Up
to 2016, inventories were valued using a weighted-average cost (WAC) method. In 2017 the method
was changed to first-in, first-out (FIFO), as it was considered to more accurately reflect the usage and
flow of inventories in the economic cycle. The impact on inventory valuation was determined to be
At December 31, 2015: an increase of 10,000 At December 31, 2016: an increase of 15,000 At
December 31, 2017: an increase of 20,000
(b) The income statements prior to adjustment are
2016 2017
Revenue 250,000 200,000
Cost of sales 100,000 80,000
Gross profit 150,000 120,000
Administration costs 60,000 50,000
Selling and distribution costs 25,000 15,000
Net profit 65,000 55,000
 Required
Present the change in accounting policy in the Income Statement and the Statement of Changes in
Equity in accordance with requirements of IAS 8.

23. Case study 2
 Facts
ethio telecom follows IFRS in preparing its financial statements. In preparing its financial statements
for financial year ending December 31, 2017, ethio telecom used these useful lives for its property,
plant, and equipment which were purchased in 2015:
Buildings: 15 years
Plant and machinery: 10 years
Furniture and fixtures: 7 years
On January 1, 2018, ethio telecom decides to review the useful lives of the property, plant, and
equipment. For this purpose it hired external valuation experts. These independent experts certified
the remaining useful lives of the property, plant, and equipment of ethio telecom at the beginning of
2018 as
Buildings: 10 years
Plant and machinery: 7 years
Furniture and fixtures: 5 years
ethio telecom uses the straight-line method of depreciation. The original cost of the various
components of property, plant, and equipment were
Buildings: 15,000,000
Plant and machinery: 10,000,000
Furniture and fixtures: 3,500,000
Required
Compute the impact on the income statement for the year ending December 31, 2018, if ethio
telecom decides to change the useful lives of the property, plant, and equipment in compliance with
the recommendations of external valuation experts. Assume that there were no salvage values for
the three components of the property, plant, and equipment either initially or at the time the useful
lives were revisited and revised.

24. Case study 3
 Facts
On January 1, 2010, ethio telecom purchased heavy-duty equipment for 400,000.
On the date of installation, it was estimated that the machine has a useful life of
10 years and a residual value of 40,000. Accordingly the annual depreciation
worked out to 36,000 = [(400,000 – 40,000) / 10].
On January 1, 2015, after four years of using the equipment, ethio telecom
decided to review the useful life of the equipment and its residual value.
Technical experts were consulted. According to them, the remaining useful life of
the equipment at January 1, 2015, was seven years and its residual value was
46,000.
 Required
Compute the revised annual depreciation for the year 2015 and future years.

25. Case study 4
Facts
•The internal auditor of ethio telecom noticed in 2018 that in 2017 the entity had
omitted to record in its books of accounts an amortization expense amounting to
30,000 relating to an intangible asset.
•An extract from the income statement for the years ended December 31, 2017 and
2018, before correction of the error follows:
2018 2017
Gross profit 300,000 345,000
General and administrative expenses (90,000) (90,000)
Selling and distribution expenses (30,000) (30,000)
Amortization (30,000) XXXX
2018 2017
Net income before income taxes 150,000 225,000
Income taxes (30,000) (45,000)
Net profit 120,000 180,000

26. Cont.
C. The “retained earnings” of ethio telecom for 2017 and 2018 before correction
of the error are
d. ethio telecom’s income tax rate was 30% for both years.
•Required
Present the accounting treatment prescribed by IAS 8 for the correction of
the errors.