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TMI BlogAccounting Policies, Changes in Accounting Estimates and ErrorsX X X X Extracts X X X X X X X X Extracts X X X X ..... ting policies, and accounting for changes in accounting policies, changes in accounting estimates and corrections of prior period errors. 4 The tax effects of corrections of prior period errors and of retrospective adjustments made to apply changes in accounting policies are accounted for and disclosed in accordance with Ind AS 12, Income Taxes. Definitions 5 The following terms are used in this Standard with the meanings specified: Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements. 13[Accounting estimates are monetary amounts in financial statements that are subject to measurement uncertainty.] Indian Accounting Standards (Ind ASs) are Standards prescribed under Section 133 of the Companies Act, 2013. 3[the term "Material", used in this Standard shall have the same meaning as assigned to it in paragraph 7 of Ind AS 1.] Prior period errors are 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: (a) was available when financial statements f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined by applying the Ind AS. 8 Ind ASs set out accounting policies that result in financial statements containing relevant and reliable information about the transactions, other events and conditions to which they apply. Those policies need not be applied when the effect of applying them is immaterial. However, it is inappropriate to make, or leave uncorrected, immaterial departures from Ind ASs to achieve a particular presentation of an entity's financial position, financial performance or cash flows. 9 Ind ASs are accompanied by guidance that is integral part of Ind AS to assist entities in applying their requirements. Such guidance is mandatory. 10 In the absence of an Ind AS that specifically applies to a transaction, other event or condition, management shall use its judgement in developing and applying an accounting policy that results in information that is: (a) relevant to the economic decision-making needs of users; and (b) reliable, in that the financial statements: (i) represent faithfully the financial position, financial performance and cash flows of the entity; (ii) reflect the economic substance of transactions, other events and conditions, and not me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions, other events or conditions that differ in substance from those previously occurring; and (b) the application of a new accounting policy for transactions, other events or conditions that did not occur previously or were immaterial. 17 The initial application of a policy to revalue assets in accordance with Ind AS 16, Property, Plant and Equipment, or Ind AS 38, Intangible Assets, is a change in an accounting policy to be dealt with as a revaluation in accordance with Ind AS 16 or Ind AS 38, rather than in accordance with this Standard. 18 Paragraphs 19-31 do not apply to the change in accounting policy described in paragraph 17. Applying changes in accounting policies 19 Subject to paragraph 23: (a) an entity shall account for a change in accounting policy resulting from the initial application of an Ind AS in accordance with the specific transitional provisions, if any, in that Ind AS; and (b) when an entity changes an accounting policy upon initial application of an Ind AS that does not include specific transitional provisions applying to that change, or changes an accounting policy voluntarily, it shall apply the change retrospectively. 20 For the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is practicable. Retrospective application to a prior period is not practicable unless it is practicable to determine the cumulative effect on the amounts in both the opening and closing balance sheets for that period. The amount of the resulting adjustment relating to periods before those presented in the financial statements is made to the opening balance of each affected component of equity of the earliest prior period presented. Usually the adjustment is made to retained earnings. However, the adjustment may be made to another component of equity (for example, to comply with an Ind AS). Any other information about prior periods, such as historical summaries of financial data, is also adjusted as far back as is practicable. 27 When it is impracticable for an entity to apply a new accounting policy retrospectively, because it cannot determine the cumulative effect of applying the policy to all prior periods, the entity, in accordance with paragraph 25, applies the new policy prospectively from the start of the earliest period practicable. It therefore disregards the portion of the cumulative adjustment to assets, liabilities and equity arising before that date. Changing an accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of the adjustment relating to periods before those presented, to the extent practicable; and (e) if retrospective application is impracticable for a particular prior 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 has been applied. Financial statements of subsequent periods need not repeat these disclosures. 30 When an entity has not applied a new Ind AS that has been issued but is not yet effective, the entity shall disclose: (a) this fact; and (b) known or reasonably estimable information relevant to assessing the possible impact that application of the new Ind AS will have on the entity's financial statements in the period of initial application. 31 In complying with paragraph 30, an entity considers disclosing: (a) the title of the new Ind AS; (b) the nature of the impending change or changes in accounting policy; (c) the date by which application of the Ind AS is required; (d) the date as at which it plans to apply the Ind AS initially; and (e) either: (i) a discussion of the impact that initial application of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a measurement technique are changes in accounting estimates unless they result from the correction of prior period errors..] 35 A change in the measurement basis applied is a change in an accounting policy, and is not a change in an accounting estimate. When it is difficult to distinguish a change in an accounting policy from a change in an accounting estimate, the change is treated as a change in an accounting estimate. 10[Applying changes in accounting estimates] 36 The effect of change in an accounting estimate, other than a change to which paragraph 37 applies, shall be recognised prospectively by including it in profit or loss in: (a) the period of the change, if the change affects that period only; or (b) the period of the change and future periods, if the change affects both. 37 To the extent that a change in an accounting estimate gives rise to changes in assets and liabilities, or relates to an item of equity, it shall be recognised by adjusting the carrying amount of the related asset, liability or equity item in the period of the change. 11[38 Prospective recognition of the effect of a change in an accounting estimate means that the change is applied to tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ror occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented. Limitations on retrospective restatement 43 A prior period error shall be corrected by retrospective restatement except to the extent that it is impracticable to determine either the period-specific effects or the cumulative effect of the error. 44 When it is impracticable to determine the period-specific effects of an error on comparative information for one or more prior periods presented, the entity shall restate the opening balances of assets, liabilities and equity for the earliest period for which retrospective restatement is practicable (which may be the current period). 45 When it is impracticable to determine the cumulative effect, at the beginning of the current period, of an error on all prior periods, the entity shall restate the comparative information to correct the error prospectively from the earliest date practicable. 46 The correction of a prior period error is excluded from profit or loss for the period in which the error is discovered. Any information presented about prior periods, including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of financial statements recognised or disclosed in respect of transactions, other events or conditions. Estimation is inherently subjective, and estimates may be developed after the reporting period. Developing estimates is potentially more difficult when retrospectively applying an accounting policy or making a retrospective restatement to correct a prior period error, because of the longer period of time that might have passed since the affected transaction, other event or condition occurred. However, the objective of estimates related to prior periods remains the same as for estimates made in the current period, namely, for the estimate to reflect the circumstances that existed when the transaction, other event or condition occurred. 52 Therefore, retrospectively applying a new accounting policy or correcting a prior period error requires distinguishing information that (a) provides evidence of circumstances that existed on the date(s) as at which the transaction, other event or condition occurred, and (b) would have been available when the financial statements for that prior period were approved for issue from other information. For some types of estimates (eg a fair va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets, makes reference to (Ind AS) 8. 2[2. Appendix B, Foreign Currency Transactions and Advance Consideration, contained in Ind AS 21, The Effects of Changes in Foreign Exchange Rates, makes reference to Ind AS 8.] Appendix 1 Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 8 and the corresponding International Accounting Standard (IAS) 8, Accounting Policies, Changes in Accounting Estimates and Errors, issued by the International Accounting Standards Board. Comparison with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors 1 Different terminology is used in this standard, eg, the term 'balance sheet' is used instead of 'Statement of financial position' and 'Statement of profit and loss' is used instead of 'Statement of comprehensive income'. The words 'approval of the financial statements for issue, have been used instead of 'authorisation of the financial statements for issue ' in the context of financial statements considered for the purpose of events after the reporting period. 2. Paragraph 9 dealing with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with Indian Accounting Standards issued by the Institute of Chartered Accountants of India states in paragraph 25 that 'users are assumed to have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information with reasonable diligence.' Therefore, the assessment needs to take into account how users with such attributes could reasonably be expected to be influenced in making economic decisions." 5. Inserted vide NOTIFICATION NO. G.S.R. 463(E) dated 24-07-2020 6. Inserted vide NOTIFICATION NO. G.S.R. 463(E) dated 24-07-2020 7. Substituted vide NOTIFICATION NO. G.S.R. 419(E) dated 18-06-2021 before it was read as "Framework" 8. Substituted vide Notification G.S.R. 242(E), dated 31.03.2023 w.e.f. 01.04.2023, before it was read as, "Changes in accounting estimates 32 As a result of the uncertainties inherent in business activities, many items in financial statements cannot be measured with precision but can only be estimated. Estimation involves judgements based on the latest available, reliable information. For example, estimates may be required of: (a) bad debts; (b) inventory obsolescence; (c) th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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