3) Accounting Policies, Changes in Policies and Estimates - PRINTED

Only permitted to change accounting policy if:

1) It is required by a primary source of GAAP (ex: new handbook section, section revised, etc.); OR 2) results in financial statements providing reliable and more relevant information

Practibility

1) new accounting policy is applied to the carrying amounts of assets and liabilities as at the beginning of the earliest period for which retrospective application is practicable (may be the current period), and a corresponding adjustment is made to the opening balance of equity. 2) If it is impracticable to determine cumulative effect at the beginning of the current period, new policy applied prospectively from the earliest date practicable. 3) "Impracticable" means that the entity cannot apply the requirement after making every effort to do so.

Change in Accounting Estimate

1) A change in estimate occurs when changes in circumstances occur (ex: based on new trend data on collection rates for A/R revision made to ADA. 2) Sometimes difficult to determine whether a change is a change in estimate or a change between acceptable accounting policies (ex: change in method of depreciation from straight line to units of production method for machine would be a change in estimate IF NEW INFO on pattern of usage suggested that units of production was more effective, otherwise may be a change in policy) 3) If event has characteristics of both a change in policy and change in estimate, change is treated as change in estimate. 4) Changes in estimate applied prospectively (no restatement of prior periods)

Errors - an error can result from

1) A mathematical mistake in FS 2) Misinterpretation or misrepresentation of information 3) Oversight of information available 4) Misappropriation of assets (unusual)

Limitations on Retrospective Application

1) Change relates to initial application of a primary source of GAAP and there are specific transitional provisions state otherwise; OR 2) It is impracticable to determine period-specific effects of changing policy on comparative info for one or more prior periods presented

Standard applies to 3 possible types of accounting changes:

1) Changes in accounting policies 2) Change in accounting estimate 3) Correction of prior period errors

How to account for errors

1) Correction of errors is retrospective 2) Prior period comparative FS are restated unless impracticable to do so. 3) Similar to change in accounting policies in some cases may only be able to do limited retrospective application (ex: only adjust opening retained earnings) or may only be able to restate prospectively

Difference in ASPE

1) Errors ALWAYS corrected retrospectively (even if impracticable to do so) 2) There are situations when entity can change accounting policies WITHOUT meeting the regular criteria (results in the FS providing reliable and more relevant information), including: a) To account for subsidiaries (equity method or as financial instrument), investments subject to significant influence, interests in joint ventures b) To capitalize or expense expenditures on internally generated intangible assets during the development phase c) To account for income taxes using the taxes payable method or the future income taxes method d) To initially measure the equity component of a financial instrument that contains both a liability and an equity instrument at zero

Where are these topics covered in the handbook?

ASPE - Section 1506 IFRS - IAS 8 *ASPE and IFRS are very similar

How to account for change in accounting policy

Change in accounting policy normally applied retrospectively

Retrospective application means:

Entity adjusts opening balance of each affected component of equity for the earliest prior period presented and the other comparative amounts disclosed for each prior period presented as if the new accounting policy had always been applied.