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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 ..... applied in selecting and applying accounting 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 misus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 When an Ind AS specifically applies to a transaction, other event or condition, the accounting policy or policies applied to that item shall be determined 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from one period to the next unless a change in accounting policy meets one of the criteria in paragraph 14. 16 The following are not changes in accounting policies: (a) the application of an accounting policy for transactions, 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust the comparative information to apply the new accounting policy prospectively from the earliest date practicable. 26 When an entity applies a new accounting policy retrospectively, it applies the new accounting policy to comparative information for prior periods as far back as 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 pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing policy provides reliable and more relevant information; (c) for the current period and each prior period presented, to the extent practicable, the amount of the adjustment: (i) for each financial statement line item affected; and (ii) if Ind AS 33 applies to the entity, for basic and diluted earnings per share; (d) the amount 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 wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n entity may need to change an accounting estimate if changes occur in the circumstances on which the accounting estimate was based or as a result of new information, new developments or more experience. By its nature, a change in an accounting estimate does not relate to prior periods and is not the correction of an error. 34A The effects on an accounting estimate of a change in an input or a change in 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 perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se prior period errors are corrected in the comparative information presented in the financial statements for that subsequent period (see paragraphs 42 47). 42 Subject to paragraph 43, an entity shall correct material prior period errors retrospectively in the first set of financial statements approved for issue after their discovery by: (a) restating the comparative amounts for the prior period(s) presented in which the error occurred; or (b) if the error 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 practica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation for one or more prior periods to achieve comparability with the current period. For example, data may not have been collected in the prior period(s) in a way that allows either retrospective application of a new accounting policy (including, for the purpose of paragraphs 51 53, its prospective application to prior periods) or retrospective restatement to correct a prior period error, and it may be impracticable to recreate the information. 51 It is frequently necessary to make estimates in applying an accounting policy to elements 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after 1 April 2023. An entity shall apply the amendments to changes in accounting estimates and changes in accounting policies that occur on or after the beginning of the first annual reporting period in which it applies the amendments. ] Appendix A References to matters contained in other Indian Accounting Standards This Appendix is an integral part of the Ind AS. 1 [(1)] Appendix B, Liabilities arising from Participating in a Specific Market- Waste Electrical and Electronic Equipment, contained in Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets, 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 Internatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... individually or collectively, influence the economic decisions that users make on the basis of the financial statements. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or a combination of both, could be the determining factor. 4. Substituted vide NOTIFICATION NO. G.S.R. 463(E) dated 24-07-2020 before it was read as 6 Assessing whether an omission or misstatement could influence economic decisions of users, and so be material, requires consideration of the characteristics of those users. The Framework for the Preparation and Presentation of Financial Statements in accordance 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod is recognised as income or expense in the current period. The effect, if any, on future periods is recognised as income or expense in those future periods 12. Substituted vide Notification G.S.R. 242(E), dated 31.03.2023 w.e.f. 01.04.2023, before it was read as, 48 Corrections of errors are distinguished from changes in accounting estimates. Accounting estimates by their nature are approximations that may need revision as additional information becomes known. For example, the gain or loss recognised on the outcome of a contingency is not the correction of an error 13. Substituted vide Notification G.S.R. 242(E), dated 31.03.2023 w.e.f. 01.04.2023, before it was read as, 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. - - statute, statutory provisions legislation, law, enact ..... X X X X Extracts X X X X X X X X Extracts X X X X
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