ACCOUNTING POLICIES,CHANGES IN ACCOUNTING ESTIMATES AND ERRORS

FRS108

Financial accounting have to be comparative to be useful. In order for the financial statement to be comparative the accounting policies selected should be applied.

FRS108 Accounting Policies, Changes in Accounting and Errors prescribes the rules for three specific areas. They are:

Changes in accounting policies.Changes in accounting estimates ; andCorrection of material errors (of prior period)

FRS 108 defines accounting policies as ‘specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statement.

Selection and Application of Accounting Policies

Numerous standards have been issued by the Malaysian Accounting Standards Board (MASB) and International Accounting Standards Board (IASB) covering a large number of elements of financial statement.

ACCOUNTING POLICIES

To enable users of financial statements to make a comparative study of the financial statements of an entity, the accounting policies selected by entity are to be applied consistently for similar transactions, other events and condition.

Consistency of Accounting Policies

Initial application of a standard or interpretation.

The change is required by a standard or an interpretation.

Voluntary changeThe change results in the financial statements

providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity’s financial position, financial performance or cash flow.

Changes in Accounting Policies

The application of an accounting policy for transactions, other events or conditions that differ in substance from those previously occurring.

The application of a new accounting policy for transactions, other events or conditions that did not occur previously or were immaterial.

Not Changes in Accounting Policies

Initial application of a financial reporting standard or interpretation and there are transitional provisions in the standard or interpretation.

Initial application of a financial reporting standard or interpretation and there are no transitional provisions in the standard or interpretation,

Voluntary change.

Accounting for Changes in Accounting Policies

FRS 108 defines retrospective applications as ‘applying a new policy to transactions, other

events and conditions as if the policy had always been applied.’

Adjust the opening balance of each affected component of equity for the earliest prior period presented, and

Present the other comparative amounts disclosed for each prior period as if the new accounting policy had always been applied.

Retrospective application

Changes to the current and future period and adjusting the comparative information from the earliest date practicable.

The period specific effects of the change, orThe cumulative effect of the change.

Limitations to retrospective application

There is a change in accounting policy resulting from the initial application of a standard or an interpretation which has a material effect on the current period or any prior period presented, or when it might have an effect on future periods.

The title of the standard or interpretation.When applicable, that the change in

accounting policy is made in accordance with its transitional provisions.

Disclosure

The nature of the change in accounting policy.When applicable, a description of the transitional

provisions.When applicable, the transitional provisions that might

have an effect on future periods.For the current period and each prior period presented, to

the extent practicable, the amount of the adjustment: -For each financial statement line item affected. -If FRS133 Earnings Per Share applies to the entity, for the basis and diluted earnings per share.The amount of the adjustment relating to periods before

those presented, to the extent practicable. If retrospective application is impracticable for a particular

period or for periods before those presented, the circumstances that led to the existence of that condition and a description of how and from when the change in accounting policy is applied.

The nature and amount of a change in an accounting estimates that has an affect in the current period or is expected to have an effect in future periods, or

If it is impractical to quantity the effect in future periods, this fact should be disclosed.

Disclosure

Prior period errors as 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 that:

Was available when financial statements for those periods were authorized for issue, and

Could reasonably be expected to have been obtained and taken into account in the preparation in the preparation and presentation of those financial statements.

Errors

Restating the comparative amounts for the period(s) presented in which the error occurred, or

Restating the opening balances of assets, liabilities and equity for the earliest prior period presented, if the error occurred before the earliest prior period presented.

Accounting Treatment of Prior Period Errors