Financial Analysis IAS 8

What is included under IAS

Accounting policies, change in accounting estimates and errors

what is accounting policy

specific principles, rules and practices applied by the entity when preparing and presenting financial statements

Two main guidelines when selecting accounting policy

1) when accounting standard applies- accounting policy must be applied in accordance with the relevant standard

2) no accounting policy applies- management must use judgment in developing an appropriate accounting policy (R,R,F,P,C)

what is R,R,F,P,C

when using guideline 2 for selecting accounting policy, chosen policy must provide info which is

R- relevant to needs of users

R- Reliable

F- Free from bias

P- Prudent

C- Complete

When can accounting policies change

1) if it is required by IFRS (international financial reporting standards)

2) change is necessary to provide more relevant and reliable info

how can accounting policy be changed

it must be changed retrospectively, go back and correct past relevant figures

What is accounting estimates, 2 examples

Estimates used when actual numbers are unknown

Examples- depreciation, bad debts

when and how can accounting estimates change

they change all the time and this is normal

should be changed prospectively, going forward

what is an accounting error

something that was wrong in previous statements

how do you correct a material error

retrospective restatement of financial statements (go back and correct errors in the period they occurred)

how to correct an immaterial error

management must make the correction in the first set of financial statements prepared after the error is discovered.