Chapte 3

ACCOUNTING
POLICIES,
PAS ESTIMATE
 8 AND
ERRORS
PAS 8: ACCOUNTING POLICIES, CHANGES IN
ACCOUNTING ESTIMATES AND ERRORS
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.
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.
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
Changes in Accounting Policies
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.
Examples of changes in accounting policy
1. Change from 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.
Accounting for Changes in Accounting Policies
Changes in accounting policies are accounted for using the
following order of priority:
1. Transitional provision of PFRS, if any
2. Retrospective application, in the absence of transitional
provision
3. Prospective application, if retrospective application is
impracticable
Retrospective Application means adjusting the opening balance “of
each affected component of equity (e.g. retained earnings) for the
earliest prior period presented and the other comparative amounts
disclosed for each prior period presented as if the new accounting
policy had always been applied.”
Impracticable means it cannot be done after

making every reasonable effort to do so.
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.
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
Accounting for Changes in Accounting Estimates
Changes in accounting estimates are accounted for by prospective application.
Prospective application means recognizing the effects of the change in profit or
loss, either in:
a. The period of change or
b. The period of change and future periods, if both are affected
Under prospective application, the beginning

balance of retained earnings and the previous
financial statements are not restated.
Errors include misapplication of accounting policies, mathematical
mistakes, oversights or misinterpretation of facts and fraud.
“Financial statements do not comply with PFRSs if they

contain either material errors or immaterial errors made
intentionally (fraud) to achieve a particular presentation of an
entity’s financial position, financial performance or cash
flows.”
The types of errors according to the period of occurrence are as
follows:
a. Current period errors – are errors in the current period that were
discovered either during the current period or after the current
period but before the financial statements were authorized for
issue. These are corrected simply by correcting entries.
b.Prior period errors – are errors in one or more prior periods that
were only disclosed either during the current period or after the
current period but before the financial statements were authorized
for issue. These are corrected by retrospective restatement.

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ACCOUNTING

Objective and Scope

Impracticable means it cannot be done after

Under prospective application, the beginning

“Financial statements do not comply with PFRSs if they

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