Financial Accounting

When changes in accounting policies are permitted?

5 1 vote
Article Rating

Though ‘consistency’ is a fundamental accounting assumption, it does not imply that accounting policies adopted once cannot be altered ever in the future. Changes in accounting policies may be required sometimes to maintain the quality and comparability of data.

Changes in accounting policies are permitted and justified in the following cases:

  1. To comply with accounting standards
  2. To ensure more appropriate accounting presentation of financial statements
  3. To comply with the law

Notably, accounting policy changes do not include the application of an accounting policy to a kind of transaction or occurrence that did not occur previously or was insignificant or not material.

If a new IASB standard or interpretation requires a change in accounting policy, the change is either accounted for in accordance with the new pronouncement’s requirements or, if the new pronouncement does not include specific transition provisions, the change in accounting policy is applied retrospectively.

Disclosures relating to changes in accounting policies

Disclosures regarding changes in accounting policy as a result of the adoption of a new standard or interpretation include the following:

  • The title of the standard or interpretation that has been amended
  • the nature of the accounting policy change a description of the transitional provisions, including those that may have an effect on future periods,
  • for the current period and each prior period presented, to the extent practicable, the amount of the adjustment:
    • for each financial statement line item affected,
    • and for basic and diluted earnings per share (only if the entity is applying IAS 33), the amount of the adjustment relating to the period presented.

Financial statements of subsequent periods need not repeat these disclosures.

Disclosures relating to voluntary changes in accounting policy include:

  • the nature of the change in accounting policy
  • the reasons why applying the new accounting policy provides reliable and more relevant information
  • for the current period and each prior period, the amount of the adjustment is presented, to the extent possible:
    • for each financial statement line item affected, and
    • for basic and diluted earnings per share (only if the entity is applying IAS 33)
  • the amount of the adjustment relating to periods before those presented, to the extent practicable
  • if retrospective application is impracticable, an explanation and description of how the change in accounting policy was applied.

Financial statements of subsequent periods need not repeat these disclosures.

Show More
5 1 vote
Article Rating
Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments

Related Articles

Back to top button
0
Would love your thoughts, please comment.x
()
x