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Income from ordinary activities
Any item of income or expense may be separately
disclosed if its disclosure is necessary to understand
results of operations of an entity for the year.
Items that warrant separate disclosure are a matter
of judgement; it is not possible to prescribe a
general rule. Write-downs of inventories and disposals
of items of property, plant and equipment, for example,
may be quite routine events and not warrant separate
disclosure. These items however may be of such size
that they warrant separate disclosure. Unusual or
non-recurring items that might be separately disclosed
include restructuring costs and environmental obligations
[IAS1R.87]
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Changes in accounting estimates
Some financial statement items can only be estimated,
rather then measured precisely [IAS8R.32,33]. Common
examples of estimates are the useful life of property,
plant and equipment and the provision for bad debts.
Revisions of estimates are not applied retroactively.
Financial information presented for prior periods
should not be restated. IFRS consider prior period
financial statements to have been properly prepared,
even though estimates are revised in a subsequent
period. The effect of revisions to estimates should
be included in income in the period of the change,
and future periods where relevant [IAS8R.36] .
The effect of the change in an accounting estimate
should be included in the same income statement
classification as was used previously for the estimate.
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Prior period errors
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:
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was available when financial
statements for those periods were authorised
for issue; and |
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could reasonably be expected to have been
obtained and taken into account in the preparation
and presentation of those financial statements. |
Such errors include the effects of mathematical
mistakes, mistakes in applying accounting policies,
oversights or misinterpretations of facts, and fraud
[IAS8R.5].
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 [IAS8R.48].
The amount of the correction of an error shall be
accounted for retrospectively. An error shall be
corrected by restating the comparative amounts for
the period(s) in which the error occurred, so that
the financial statements are presented as if the
error had never occurred. When the error occurred
before the earliest period presented, an entity
should restate the opening balance of assets, liabilities
and equity for that period [IAS8R.42] .
The correction of a prior period error is excluded
from the determination of profit or loss for the
period in which the error is discovered. Any information
presented about prior periods, including any historical
summaries of financial data, is restated as far
back as is practicable [IAS8R.46].
Changes in accounting policies
A change in accounting policy should be made only
if required by a Standard or an Interpretation;
or if the change will result 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 flows [IAS8R.14].
The adoption of a new accounting policy as a result
of changes in facts and circumstances does not necessarily
imply a change in accounting policy [IAS8R.16] .
IFRS require that if more than one accounting policy
is available, an entity should choose and apply
one policy consistently [IAS8R.13].
A change in accounting policy should be accounted
for retrospectively [IAS8R.19]. Any adjustment should
be reported as an adjustment to the opening balance
of each affected component of equity for the earliest
period presented and the other comparative amounts
disclosed shall be presented as if the new accounting
policy had always been applied unless it is impracticable
to determine either the period-specific effects
or the cumulative effect of the change [IAS8R.22,23].
Adoption of new or revised IFRS
New or revised IFRS may require changes in accounting
policy. Most new or revised standards contain specific
transitional provisions explaining how to deal with
the change in accounting policy [IAS8R.19]. Such
guidance may require either retrospective or prospective
application of the change, or require an exceptional
transitional accounting treatment. In the absence
of specific guidance, a change in the accounting
policy shall be applied retrospectively.
Disclosure and presentation
IFRS require disclosures of:
| a) |
the nature and
amount of a change in accounting estimate that
has a material effect in the period and potentially
subsequent periods [IAS8R.39]; |
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| b) |
in respect of prior period errors the [IAS8R.49]:
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nature of the prior period error; |
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amount of the correction for each period presented; |
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amount of the correction at the beginning
of the earliest prior period presented; and |
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if retrospective application is impracticable,
disclose that fact, the nature and the reasons
for the circumstances; |
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| c) |
in respect of a change in accounting
policy the [IAS8R.28,29]: |
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nature and reasons for the change; |
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amount of the adjustment for the current
period and for each period presented; |
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the amount of the adjustment relating
to periods prior to those presented; and |
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the fact that the retrospective application
is impracticable, nature and reasons for the
circumstances. |
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