IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

Chapter 6/ Accounting Policies, Changes in Accounting Estimates and Errors (lAS 8)

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Net book value at January 1, 20XS:

$400,000 - ($36,000 x 4 years) $256,000 Revised annual depreciation for 20XS and future years: ($256,000 - $46,000) / 7 = $30,000

10.5 Disclosures with Respect to Changes in Accounting Estimates An entity should disclose amounts and nature of changes in accounting estimates. In addition, it should also disclose changes relating to future periods, unless impracticable. The definition of "im– practicable," which has been explained for the purposes of "change in accounting policy," applies in case of "changes in accounting estimates" as well. 11. CORRECTION OF PRIOR-PERIOD ERRORS 11.1 Errors can arise in recognition, measurement, presentation, or disclosure of items in finan– cial statements. If financial statements contain either material errors or intentional immaterial errors that achieve a particular presentation, then they do not comply with IFRS . Misstatements or omis– sions are "material" if they could, either individually or cumulatively, influence the decisions of users of financial statements. 11.2 Discovery of material errors relating to prior periods shall be corrected by restating com– parative figures in the financial statements for the year in which the error is discovered, unless it is "impracticable" to do so. Again, the strict definition of "impracticable" (as explained above) ap– plies. 11.3 Disclosures in Respect of Correction of Prior-Period Errors With respect to the correction of prior-period errors, lAS 8, paragraph 49 , requires disclosure of • The nature of the prior-period error; • For each period presented, to the extent practicable, the amount of the correction: • For each financial statement line item affected; and • For entities to which lAS 33 applies, for basic and diluted earnings per share. • The amount of the correction at the beginning of the earliest prior period presented; and • If retrospective restatement is "impracticable" for a particular prior period, the circumstances that led to the existence of that condition and a description of how and from when the error has been corrected. Once disclosed, these disclosures are not to be repeated in financial statements of subsequent peri– ods. Facts (a) The internal auditor of Vigilant Inc. noticed in 200Y that in 200X the entity had omitted to record in its books of accounts an amortization expense amounting to $30,000 relating to an intangible asset. (b) An extract from the income statement for the years ended December 31, 200X and 200Y, before correction of the error follows: (90,000) (30,000) XXXX 225,000 (45 000) $180000 (c) The "retained earnings" of Vigilant Inc. for 200X and 200Y before correction of the error are Gross profit General andadministrative expenses Selling anddistribution expenses Amortization Net income before income taxes Income taxes Netprofit 200Y $300,000 (90,000) (30,000) (30 000) 150,000 (30 000) $120 000 200X $345,000 Case Study 4