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• 5 Presentation of published financial statements

• 5.7 IAS 8 Accounting policies, changes in accounting estimates and errors

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• What are accounting policies? How should they be selected and applied?

  Accounting policies are the specific principles, bases, conventions, rules and practices applied baby an entity in preparing financial statements.
  
  
  Accounting policies are determined by applying the relevant IFRS or IAS.
  
  Where not available, management should use their judgement in developing and applying an accounting policy that is relevant and reliable.

• When are changes in accounting policies warranted?

  Changes in accounting policies are rare, because they are applied year over year.
  
  However, changes should be made if required by one of three things:
  
  

  1. A new statutory requirement
  2. A new accounting standard
  3. If a change will result in more appropriate presentation of events or transactions

• IAS 8 Highlight two types of events which do not constitute changes in accounting policies - what are they?

  1. Adopting an accounting policy for a new type of transaction or event not dealt with previously by the reporting entity
  2. Adopting a new account policy for a transaction or event which has not occurred in the pas or was not material
  
  If a policy of revaluation of PPE is adopted for the first time, then it is treated as a revaluation under IAS 16 PPE, not as change in accounting policies.

• Explain how retrospective application works for changes in accounting policies?

  Retrospective application means to supply a new accounting policy to transactions other events, and conditions as if that policy had always been in place.
  
  This is required, unless impracticable to determine the cumulative amount of the adjustment. It is impracticable when the entity cannot apply it after making every reasonable effort to do so.
  
  In other words retrospective application means restating comparative information as if the new policy was always in force, unless impracticable.

• When is prospective application allowed and why?

  Only when it is impracticable to apply retrospectively.
  
  Prospective means to apply a change in accounting policy to transactions, other events, and conditions occurring after the date it is changed.

• What needs to be disclosed when accounting policies are changed?

  • Reasons for Change (new Statutory, new Accounting Standard, More appropriate)
    
  • Nature of change
    
  • Amount of adjustment for periods presented
    
  • Amount of adjustments for comparative information
    
  • The fact that the comparative information has been restated or that it is impracticable to do so.
    

• What are accounting estimates and how should changes in them be presented?

  Accounting estimates are judgements based on the most up to date information and have inherent uncertainties within them. They are a necessary part of the preparation of financial statements.
  
  Examples include: Doubtful debt provisions, Useful lives of depreciable assets and provisions for obsolescence of inventory.
  
  When changed the effect of the change should be accounted for prospectively

• 5.8 IFRS 8 Operating Segments

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• IFRS 8  requires an entity to adopt the management approach to reporting of financial performance of its operating segments. What is meant by the management approach?

  To formulate and draft financial statements as though prepared for management. Advantages:
  
  
  

  • Allows users of FS to view operations through the eyes of management
    
  • As it is based on formation which is being collected anyway, it should not involve too much costs or time to prepare

  
  IFRS 8 applies to listed companies only.

• What is an operating segment?

  An OPERATING SEGMENT is a component of an entity:
  
  

  1. that engages in business activities from which it may earn revenues
  2. whose operating results are regularly reviewed by the entity's chief operating decision maker to make decisions on resources to be allocated to the segment and assess its performance
  3. for which discrete financial information is available

• For which operating segment should an entity provide information?

  An entity must report information for each OPERATING SEGMENT that:
  
  

  1. Has been identified as meeting the definition of an operating segment;and
  2. Exceeds any of the following thresholds:

  
  Segment revenue is 10% or more of the total revenue OR;
  Segment Profit or Loss is 10% or more of all segments in profit
  Segment asset are 10% or more of total assets
  
  At least 75% of total external revenue must be reported by operating segments. Where this is not the case, additional segment must be identified - even if they do not meet the 10 % thresholds.