Resources (This includes links to the latest standards, drafts, PwC interpretations, tools and practice aids for this topic)
On 27 March 2018, the IASB published an exposure draft 'Accounting policy changes - Proposed amendments to IAS 8' to consider changes in accounting policies that result from agenda decisions published by the IFRS Interpretations committee. The exposure draft closed for comments on 27 July 2018.
On 14 September 2017, the IASB published an exposure draft on the 'Definition of material (Proposed amendments to IAS 1 and IAS 8)' to clarify the definition of ‘material’ and its explanation, to align the definition used in the Conceptual Framework and the standards themselves, and to incorporate some of the existing guidance in IAS 1 about immaterial information. The exposure draft closed for comments on 15 January 2018.
In September 2017 The IASB also issued a practice statement on Materiality.
In September 2017 the IASB published an exposure draft on ‘Accounting policies and accounting estimates (Proposed amendments to IAS 8)’, which proposes amendments to help companies distinguish accounting policies from accounting estimates. The exposure draft closed for comments on 15 January 2018.
An entity follows the accounting policies required by IFRS that are relevant to the transactions, other events and conditions of the entity. Sometimes standards offer a policy choice; there are other situations where no guidance is given by IFRSs. In these situations, management should develop and apply appropriate accounting policies.
Management uses judgement in developing and applying an accounting policy that results in information that is relevant and reliable. Reliable information demonstrates the following qualities: faithful representation, substance over form, neutrality, prudence and completeness. If there is no IFRS standard or interpretation that is specifically applicable, management considers the applicability of the requirements in IFRS on similar and related issues, and then the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Framework. Management can also consider the most recent pronouncements of other standard-setting bodies, other accounting literature and accepted industry practices, where these do not conflict with IFRS.
Accounting policies are applied consistently to similar items, transactions and events (unless a standard permits or requires otherwise).
Changes in accounting policies
Changes in accounting policies made on adoption of a new standard or interpretation are accounted for in accordance with the transitional provisions (if any) within that standard or interpretation. If a change in policy upon initial application of a new standard does not include specific transitional provisions, or it is a voluntary change in policy, it should be accounted for retrospectively (that is, by restating all comparative figures presented) unless this is impracticable. There is also a specific exception for the initial adoption of a policy to measure property, plant and equipment or intangible assets by applying the revaluation model, which would be accounted for in the year the change is being made.
Issue of new/revised standards not yet effective
Standards are normally published in advance of the required implementation date. In the intervening period, where a new/revised standard that is relevant to an entity has been issued but is not yet effective, management discloses this fact. It also provides the known or reasonably estimable information relevant to assessing the impact that the application of the standard might have on the entity's financial statements in the period of initial recognition.
Changes in accounting estimates
An entity recognises changes in accounting estimates prospectively, by including the effects in profit or loss in the period that is affected (the period of the change and future periods, if applicable), except where the change in estimate gives rise to changes in assets, liabilities or equity. In this case, it is recognised by adjusting the carrying amount of the related asset, liability or equity in the period of the change.
Errors might arise from mistakes (mathematical or application of accounting policies), oversights or misinterpretation of facts, and fraud.
Errors that are discovered in a subsequent period are prior-period errors. Material prior-period errors are adjusted retrospectively (that is, by restating comparative figures) unless this is impracticable (that is, it cannot be done, after “making every reasonable effort to do so”).