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Unformatted text preview: Solutions to Gripping IFRS : Graded Questions Accounting policies, Changes in accounting estimates and Errors Kolitz &amp; Sowden-Service, 2009 Chapter 7: Page 1 Solution 7.1 a.) i) Accounting policies are specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements (IAS 8,p5). ii) A change in accounting policy shall be made if: it is required by IFRS or Interpretation; or it results in more reliable and relevant presentation in the financial statements, financial position or financial performance of the entity. Accounting policies are the principles upon which the presentation of the financial statements are based and therefore applying changes to these accounting policies cannot be made prospectively as it will compromise the comparability and consistency of the financial statements. A change in accounting policy is therefore applied retrospectively with all prior period comparatives in the set of financial statements being restated and based upon the new policy. All prior periods not given as comparatives must also be adjusted, but with the cumulative effect on the opening balance of retained earnings disclosed as a single adjustment. Where adjustments to prior periods are impracticable to determine (i.e. the company cannot apply it after making every reasonable attempt to do so), the application of a prospective adjustment may be appropriate. b.) i) 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 value status of, and the expected future benefits and obligations associated with, assets and liabilities. Changes in accounting estimates result from the new information or new developments and, accordingly, are not correction of errors (IAS 8, p5). ii) A change in accounting estimate relates to the change in the present status of expected future benefits and obligations associated with assets and liabilities. Due to accounting estimates relating to future benefits, a retrospective change would not be appropriate. The effect of a change in accounting estimate shall therefore be recognised prospectively by including it in profit or loss in the period of the change, if that change affects that period only; i.e. the current period; or the period of the change and in future periods, if the change affects both. (IAS 8.36) To the extent that a change in 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 (IAS 8.37)....
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