ACCOUNTING ESTIMATE ACCOUNTING POLICIES
DEFINITION Adjustment of carrying amount (CA) of an asset or These are the specific principles, bases,
liability or amount of periodic assumption of an asset conventions, rules and practices applied by an
or liability that results from the assessment of the entity in preparing FS.
PRESENT status of an expected FUTURE benefit or
obligation associated with the asset or liability.
EXAMPLES: Examples of Accounting Estimate: The chosen or selected accounting
•Bad Debts treatment stated in the provisions of the
•NRV of Inventory and Inventory obsolescence specific PFRSs addressing each line items
•Fair Value of asset and liability in the FS (PASs, PFRSs, and PICs)
•Warranty Obligation
•Depreciation Expense
HOW TO ACCOUNT? Currently and Prospectively Retrospectively
(Prospective application- recognize effect of change in (As if from the very beginning, you are using the said new
current and future periods.) accounting policy.) Adjust the opening balance of the
Retained Earnings.
RATIONALE FOR THE •Estimates are fundamental to the accounting process •Under the accounting standards, alternative treatments are
ACCOUNTING •Changes are expected and recurring possible so the entity shall select and apply the same
accounting policies each period in order to achieve
comparability of or;
•To identify trends in the financial position, performance and
cash flows of an entity.
TIMING OF CHANGE IN- •Changes are expected and recurring A change in accounting policy shall be made only when:
•Required by an accounting standard or an
•The change will result in more relevant and faithfully
represented information about the financial position, financial
performance and cash flows of an entity.
DISCLOSURE •Nature of the change •Nature of the change
REQUIREMENT •Amount of the change, unless effect on future periods •Details of financial effect/impact of the change in the
impracticable to estimate. accounting policy
LIMITATIONS Retrospective application of a change in AP is not required if it
is impracticable to determine the cumulative effect of the
change therefore apply PROSPECTIVELY.
CHANGE IN REPORTING ENTITY
•What is a reporting entity?
- Those who filed either stand-alone FS, or Separate and Consolidated FS or Combined FS
•What is a change in reporting entity?
- Change whereby entities change their nature and report operations in such a way that the FS are in effect those of a different reporting entity.
•What is the accounting treatment for the change?
- Retrospectively or Retroactively
ABSENCE OF ACCOUNTING STANDARD
- Management shall use judgement in selecting and applying accounting policy (relevant and faithfully represented)
o HIERARCHY OF GUIDANCE
1. Similar matters (existing standards)
2. Conceptual Framework
3. Other standard- setting bodies
PRIOR PERIOD ERRORS
- Are omissions and misstatements in the FS for one or more periods arising form a failure to use or misuse of reliable information that;
o Was available when FS for those periods were authorized for issue.
o Could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those FS.
WHAT IS THE ACCOUNTING TREATMENT FOR PRIOR PERIOD ERRORS?
- Shall be corrected RETROSPECTIVLY (Retrospective Restatement) by adjusting the opening balances of the Retained Earnings and affected Assets and Liabilities.
- if impracticable to determine the cumulative effect at the beginning of the current period of an error on all prior periods--- restate PROSPECTIVELY.
