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IAS 8 Accounting Policies Changes in Accounting Estimates and Errors -…
IAS 8 Accounting Policies Changes in Accounting Estimates and Errors
A
systematic approach to analyzing
the given transaction:
Prior Period Errors
Step 4: Materiality Assessment:
The answer references IAS 8's statement that a
prior period error is considered material if it could influence the economic decisions of users based on the financial statements
. It explains that
materiality depends on the size and nature of the omission
or
misstatement in the given circumstances
.
Step 5: Evaluation of materiality based on value and nature
The answer
analyzes the materiality of the error
by considering the
value of the invoice
and
the nature of the transaction
. It states that the amount is considered material because it is both
of significant value
(stating the specific amount) and
represents revenue
, which is a
crucial component
for a pharmaceutical company.
Step 3: Identification of the Inclusion of an Invoice as an Error
The answer points out that the inclusion of the invoice dated 15 July 2020 represents a prior period error. It explains that this is because the invoice falls outside the reporting period ended 30 June 2020, and the
financial manager's comment indicates that the information should have been available at year-end
.
Step 2: Explanation of types of errors
The
answer explains that prior period errors can include
mathematical mistakes, errors in applying accounting policies, oversights or misinterpretations of facts, and fraud.
Step 6: Impact on Financial Statements
The
answer concludes that the inclusion of the invoice
in the financial statements for the reporting period ended 30 June 2020 results in an
overstatement of revenue
, specifically stating the amount.
It highlights that this misrepresentation affects the balance presented and disclosed in the financial statements
.
Step 1: Definition of Prior Period Errors
The answer begins by
providing a definition of prior period errors
according to IAS 8 (International Accounting Standard 8).
The definition states that
prior period errors are omissions from
or
misstatements in an entity's financial statements
for
one or more prior periods
, arising from the
failure to use reliable information
that was
available
when the financial statements were authorized for issue.
Step 7: Correction and Restatement
The
answer suggests that the error should be corrected retrospectively
, meaning that the comparative amounts for the prior period should be restated to rectify the misstatement.
A
systematic approach to analyzing
the given transaction:
Change in the Accounting Policy
From Cost method to Fair Value method
Step 5: Conditions for a Change in Accounting Policy
The answer states that a change in accounting policy can take place
if it is required by a Standard
or
an Interpretation
or
if the change results in the financial statements providing reliable and more relevant information
about the effects of transactions, events, or conditions on the entity's financial position, financial performance, or cash flows.
Step 4: Frequency of Changes in Accounting Policies
It is noted that
changes in accounting policies are not expected to occur often
as it
goes against the goal of comparable financial statements
that the enhancing qualitative characteristics require of entities
.
Step 6: Financial Manager's Comment
It is mentioned that the financial manager
commented that changing the measurement model from cost to fair value would be more beneficial for DiscoverUs
and the users of the financial statements,
providing more relevant and reliable information
about the entity's financial position.
Step 3: Change in Accounting Policy
The answer states that the change in the Measurement Model of Investment Property
from the Cost Model
to the Fair Value Model represents
a change in the accounting polic
y for the subsequent measurement of investment property.
Step 7: Appropriateness of the Change in Accounting Policy
The answer
concludes that the change in accounting policy would be appropriate for DiscoverUs according to IAS 8
, which deals with changes in accounting policies.
Step 2: Source of Accounting Policies
It is
mentioned
that these accounting policies are found in the Standards and Interpretations of the International Accounting Standards Board (IASB) known as
International Financial Reporting Standards
(IFRS).
Step 8: Retrospective Application of the New Policy
It is
stated that the change in accounting policy would be applied retrospectively
, meaning that the financial statements would be adjusted t
o show the new accounting policy being applied to transactions as if the new policy had always been in use
.
Step 1: Introduction and Definition of Accounting Policies
The answer begins by providing a definition of accounting policies as
The specific principles, bases, conventions, rules, and practices adopted by an entity in preparing and presenting financial statements.
Step 9: Adjustments to Financial Statements
Finally, the answer mentions that the financial statements, including the comparative amounts,
would need to be adjusted to reflect the new policy.