IAS 8 – ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS
27 May 2009
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Dear Experts,
Please give your opinion on the following on IAS-8
An expense provision was taken twice, Whether IAS 8 will apply and need restatement of previous year or to be considered as liability w/back and take it to income.
An estimate of an expense was taken on adhoc and that was in excess of what paid in subsequent year, Whether IAS-8 will apply and restatement is required or to be considered as liability w/back and take it to income.
Thanks,
Hemant
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Whether IAS 8 will apply depends upon the exact circumstances.
(Quotes taken from the text of IAS
Was the amount material?
“Omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions that users make on the basis of the financial statements. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or a combination of both, could be the determining factor.”
Your first paragraph would indicate the existence of an error :
“Prior period errors are omissions from, and misstatements in, the entity’s financial statements[G] for one or more prior periods arising from a failure to use, or misuse of, reliable information that:
(a) was available when financial statements for those periods were authorised for issue; [Refer: IAS 10 paragraphs 3–7] and
(b) 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.”
But your second paragraph reads more like a simple overestimate :
“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 status of, and expected future benefits and obligations associated with, assets and liabilities. Changes in accounting estimates result from new information or new developments and, accordingly, are not corrections of errors.”
If it was an error, and material, IAS 8 applies and you should not pass the correction through income :
“46 The correction of a prior period error is excluded from 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.”
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