As 1 disclousre of accounting policiesNeeraj Mehra
AS 1 deals with disclosure of significant accounting policies followed in the preparation and presentation of the financial statements. The purpose of this standard is to promote a better understanding of financial statements by establishing the disclosure of significant accounting policies. Such disclosure would also facilitate a more meaningful comparison between financial statements of different enterprises.
As 1 disclousre of accounting policiesNeeraj Mehra
AS 1 deals with disclosure of significant accounting policies followed in the preparation and presentation of the financial statements. The purpose of this standard is to promote a better understanding of financial statements by establishing the disclosure of significant accounting policies. Such disclosure would also facilitate a more meaningful comparison between financial statements of different enterprises.
How do you record different types of accounting doc 6.docxintel-writers.com
Accounting changes
refer to alterations made in accounting principles, estimates, or reporting methods by an organization. Recording different types of accounting changes is essential for maintaining accurate financial records and providing transparency to stakeholders. Here is a discussion on how to record different types of accounting changes:
Change in Accounting Principles: A change in accounting principles occurs when an organization switches from one generally accepted accounting principle (GAAP) to another. When this change takes place, the new principle is adopted and consistently applied for future financial reporting. The organization must disclose the nature of the change, the reasons for the change, and the financial impact of the change in the financial statements. The impact of the change is typically recorded as an adjustment to the opening balance of retained earnings or other appropriate equity accounts.
Change in Accounting Estimates: Accounting estimates are approximations made by management for uncertain amounts or future events, such as the useful life of an asset, the allowance for doubtful accounts, or the valuation of inventory. If there is a change in an accounting estimate that affects the current and future periods, the change is typically applied prospectively. This means that the adjustment is made in the current period and does not require restating prior financial statements. The organization should disclose the nature of the change and the effect on the financial statements in the notes to the financial statements.
Change in Reporting Methods: A change in reporting methods refers to a change in how financial information is presented or classified in the financial statements. For example, changing the format of the income statement or reclassifying certain items from one category to another. Such changes should be applied retrospectively, meaning that prior financial statements are restated to reflect the new reporting method.
Milestone Two
Geoff Brown
Professor Duhn
ACC 680
February 16, 2017
Introduction
I have worked as an accountant specialist for Whitlock Company for the past three years. I have gained a lot of experience that has shaped my accounting skills and knowledge. I have received promotions based on my good work to the position of heading accounting department. The company offers accounting services such as public accounting, bookkeeping and auditing. The company has developed a work plan. The work plan purpose is to consider particular factors and areas important to a commission determination as to how, when and whether the current financial reporting system in the company should be changed to a system integrating International Financial Reporting Standards (IFRS). The work plan showed that application of IFRS and sufficient development evaluation involve inventorying fields in which IFRS does not provide guidance than the GAAP.
Different reporting requirements for IFRS and GAAP
In GAAP, it presents a comparative financial statement and requires public organizations to follow SEC rules that need two-recent year’s balance sheets and the other statements should cover a three-year period ended on the balance sheet date. Nevertheless, one year can be presented in a specific condition. For IFRS, there must be disclosure of comparative information with respect to past period for all amounts reported in the present time financial statement.
Cont.
There is no general requirement to prepare income statements and balance sheets in accordance with particular layout in GAAP. But, public organizations are required to follow the detailed Regulation S-X requirements. However, IFRS does not recommend a customary layout. It involves a list minimum line items which are less prescriptive when compared to the Regulation S-X requirements.
There are no general requirements that solve the disclosure of performance measures for GAAP. Certain major measures are defined in SEC regulations and require the provision of certain subtotals and headings. For IFRS, there is presentation of certain traditional concepts such as subtotals and headings, and line items diversity in the income statements. It allows the presentation of additional headings and subtotals and line items in the comprehensive income statement.
Cont.
GAAP requires presentation of Debt which has covenant violation as a non-present if the creditor contract to waive the right to demand repayment for more than a year exists before the financial statement issuance. IFRS requires presentation of Debt associated with covenant violation as present unless the creditor contract was reached prior to the balance sheet date.
In GAAP, third balance sheet is not required. In IFRS, a third balance sheet should be presented at the beginning of comparative period when there is reclassifications that have a material effect, a retrospective restatement or a retrospective application of new accounting policies that hav ...
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1. IAS 8: Accounting Policies,
Changes in Accounting
Estimates and Errors
Roshankumar S Pimpalkar
roshankumar.2007@rediffmail.com
2. This standard is applied when selecting an accounting policy, accounting for
changes in an accounting policy and making changes to estimates and errors.
Objectives:
To prescribe the
Selection criteria used in determining the accounting policies, as well as
accounting treatment and disclosure of changes to accounting policies.
Requirements for changes to accounting estimates and accounting treatment
and disclosure of such changes.
Definition of errors and the accounting treatment and disclosure of errors.
Accounting Policies are the specific set of principles, rules, bases and conventions
adopted by an entity in preparation and presentation of financial statement. E.g.
whether an entity decides to use FIFO or weighted average method of inventory
valuation
Errors are omission from, and other misstatements of, the financial statements of an
entity for one or more periods that are discovered in the current period and relate to
reliable information that:
That was available when those prior period financial statement were
prepared, and
Could reasonably be expected to have been obtained and taken into account
while preparing and presenting those financial statements.
It includes mathematical mistakes, mistakes in applying accounting policies,
oversights and misrepresentation of facts and fraud.
Selection of an Accounting Policy
There are two situations:
1. When IFRS applies to the specific item in the financial statements
2. When no specific IFRS or interpretation of IFRS applies to an item in the
financial statement exists.
Situation 1: Management should consider following sources in descending order
when deciding which accounting policy to use
The requirement in IFRS and Appendices dealing with related and similar
issues.
The definition, recognition criteria and measurement concepts assets,
liabilities, income and expenses set out in the Framework for Preparation and
Presentation of Financial Statements.
Pronouncements of other standard setting bodies, that use similar conceptual
framework, but only to the extent they are in line with the above two points.
roshankumar.2007@rediffmail.com
3. While selecting an accounting policy reasonableness of an accounting policy
in terms of regulatory guidelines need not be considered.
Situation 2: in such case the accounting policy should result in the information that is
Relevant to the decision making need of the users, and
Reliable.
Consistency of Accounting Policy
Accounting policies for a period should be selected and applied consistently for
similar transactions, events and circumstances unless IFRS requires or permits a
categorisation of items for which different policies may be appropriate. In such
situation, an appropriate accounting policy should be selected and applied
consistently.
Changes in Accounting Policy
A change in Accounting policy shall be made only if it:
Is required by an IFRS; or
Results in more reliable and relevant presentation in the financial statement of
effect of transactions and events on entity’s financial position, performance
and cash flows.
The following are not changes in Accounting Policy
The adoption of accounting policy for transactions and events that differ in
substance from those occurring previously; and
The adoption of new accounting policy for transactions and events that did
not occur previously or were immaterial.
Change in Accounting Policy could occur in two ways
Adoption of an IFRS
Voluntary change
1. Adoption of IFRS
a. Transitional Provision exist
i. A change in accounting policy should be accounted for in terms
of transitional provision of an IFRS
ii. Comparative information need not be restated if it is
impracticable. In such case
1. The entity should apply new accounting policy to the
carrying amounts of assets and liabilities as at earliest
roshankumar.2007@rediffmail.com
4. period for which the retrospective application is possible,
and
2. Adjust the opening balance of affected component of
equity for that period.
b. No Transitional Provision exist
i. In such case change should be applied retrospectively.
ii. This means that the opening balance of the retained earnings of
the earliest prior period presented and other comparative
amounts disclosed for each prior period presented shall be
adjusted as if the new accounting policy had always been in
use.
2. Voluntary Change
a. In this case accounting policy should be applied retrospectively. The
following should be adjusted as if the new accounting policy had
always been in use
i. The opening balance of the retained earnings for the earliest
period presented, and
ii. The comparative amounts disclosed for each prior period.
b. Disclosure
i. Reasons for the change.
ii. Amount of adjustment for current period and each prior period
presented.
iii. Amount of adjustments relating to periods prior to those
presented, and
iv. That comparative information has been restated, or that
restatement for a particular prior period has not been made
because it would be impracticable.
Note: in any case retrospective application of new accounting policy is not needed if
it is impracticable to do so.
Accounting Estimates
Why do we need to make estimates?
Due to the uncertainties inherent in the business activities, financial statement items
cannot be measured with precision but can only be estimated.
When would an estimate be required?
Estimate is required when management judgement is required, for example, for
Bad debts
Inventory obsolescence
The fair value of financial assets
roshankumar.2007@rediffmail.com
5. Do initial estimate ever require revision?
An estimate may need revision if changes occur regarding circumstances on which
the estimate was based. This may result from new information or subsequent
development.
What is the difference between change in accounting policy and change in
accounting estimate?
If there is change is measurement basis or method applied this is change in
accounting policy and not change in accounting estimate. When it is difficult to
distinguish between a change in accounting policy and change in accounting
estimate, then the change is treated as change in accounting estimate, with proper
disclosure.
Accounting for changes in Accounting Estimates
The effect of change in accounting estimate should be recognised prospectively by
including it in profit and loss in
The period of change if the change affects that period only. E.g. change in
estimation of bad debts.
The period of change and future periods, if the change affects both. E.g.
change in estimated useful life of depreciable asset would affect the
depreciation expense for the remainder of the current period, as well as the
future period during the asset’s remaining useful life.
Disclosure:
The nature and amount of change in an accounting estimate that has an effect in the
current period, or is expected to have an effect in subsequent periods, should be
disclosed.
The amount of effect on subsequent periods need not be disclosed if estimating it
would be impracticable to so. However in such case that fact should be disclosed.
Accounting for Errors
The amount of correction of an error should be accounted for retrospectively by
either:
Restating the comparative amounts for the prior period(s) in which the error
occurred, or
If the error occurred before earliest period presented, restating the opening
balance of retained earnings for the earliest prior period presented.
This ensures that the financial statements are presented as if the error had never
occurred before.
roshankumar.2007@rediffmail.com
6. However restatement of comparative information is not required if it is impracticable
to do so. In such case the opening balance of the retained earnings for the next
period should be restated for the cumulative effect of the error before the beginning
of that period.
The correction of an error is excluded from the profit and loss in the period in which
error is discovered. The financial statements are presented as if the error had never
occurred before by making the adjustment as stated above.
Disclosure:
The nature of the error
The amount of the correction for each prior period presented
The amount of correction relating to periods prior to those presented in
comparative information
That comparative information has been restated or not due to being
impracticable.
roshankumar.2007@rediffmail.com