UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA

CALAMBA CAMPUS, BRGY. PACIANO RIZAL

CALAMBA CITY, LAGUNA, PHILIPPINES

Chapter 11 – PAS 8: ACCTG POLICIES, ESTIMATES & ERRORS EDMUND E. HILARIO, CPA, MBA
PAS 10: Events after the reporting periods 1St SEMESTER 2019 – 2020
=============================================================================
I. PAS 8: ACCOUNTING POLICIES, ESTIMATES & voluntarily, the change shall be applied
ERRORS retrospectively or retroactively.
A. Definition of accounting policy Retrospective application
Accounting policies are the specific principles, bases, Retrospective application means that any resulting
conventions, rules and practice applied by an entity adjustment from the change in accounting policy
in preparing and presenting financial statements. shall be reported as an adjustment to the opening
Accounting policies are essential for a proper balance of retained earnings. The amount of the
understanding of the information contained in the adjustment is determined as of the beginning of the
financial statements. An entity is required to outline year of change.
all significant accounting policies applied in preparing
the financial statements. If comparative information is presented, the financial
statements of the prior period presented shall be
Under accounting standard, alternative treatments restated to conform with the new accounting policy.
are possible. In this case, it becomes all the more
important for an entity to clearly state the accounting Absence of accounting standard
policies used in preparing financial statements. The PAS 8 paragraph 10, provides that in the absence of
entity shall select and apply the same accounting an accounting standard that specifically applies to a
policies each period in order to achieve comparability transaction or event, management shall use
of financial statements or to identify trends in the judgment in selecting and applying an accounting
financial positions, performance and cash flow of the policy that results in information that is relevant to
entity. the economic decision making needs of user and
faithfully represented. Paragraph 11 and 12 specify
B. Change in accounting policy the following hierarchy of guidance which
Once selected, accounting policies must be applied management may use when selecting accounting
consistently for similar transactions and events. A policies in such circumstances:
change in accounting policies shall be made only 1. Requirements of current standards dealings with
when: similar matters
1. Required by an accounting standards 2. Definition, recognition criteria and measurement
2. The change will result in more relevant and concepts for assets, liabilities, income and
faithfully represented information about the expenses in the Conceptual Framework for
financial position, financial performance and cash Financial Reporting
flow of the entity. 3. Most recent pronouncements of other standard
setting bodies that use a similar Conceptual
Examples of change in accounting policy Framework, other accounting literature and
A change in accounting policy arises when an entity accepted industry practices
adopts a generally accepted accounting principle
which is different from the one previously used by the C. Definition of accounting estimate
entity. Examples of change in accounting policies A change in accounting estimate is a normal recurring
are: correction or adjustment of an asset or liability which
1. Change in the method of inventory pricing from is the natural result of the use of an estimate. An
the FIFO to weighted average method estimate may need revision if changes occur
2. Change in the method of accounting for long- regarding the circumstances on which the estimate
term construction contract from cost recovery was based or as a result of new information, more
method to percentage of completion method experience or subsequent development.
3. The initial adoption of policy to carry assets at
revalued amount is a change in accounting policy By very nature, the revision of the estimate does not
to be dealt with as revaluation relate to prior periods and is not a correction of an
4. Change from cost model to fair value model in error. Sometimes it is difficult to distinguish a
measuring investment in property change in accounting estimate and a change in
5. Change to a new policy resulting from the accounting policy. In such case, the change is
requirement of a new PFRS. treated as a change in accounting estimate with
appropriate disclosure.
How to report a change in accounting policy
A change in accounting policy required by a standard Example of accounting estimates
or an interpretation shall be applied in accordance As a result of the uncertainties in business activities,
with the transitional provisions therein. If the many items in financial statements cannot be
standard or interpretation contains no transitional measured with precision but can only be estimated.
provisions or if an accounting policy is changed Estimation involves judgment based on the latest

============================================================================================
Page 1 of 3
 UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL
CALAMBA CITY, LAGUNA, PHILIPPINES

Chapter 11 – PAS 8: ACCTG POLICIES, ESTIMATES & ERRORS EDMUND E. HILARIO, CPA, MBA
PAS 10: Events after the reporting periods 1St SEMESTER 2019 – 2020
=============================================================================
available and reliable information. Estimates may be namely, (1) adjusting events, and (2)
required for the following: Nonadjusting events.
1. Doubtful accounts
2. Inventory obsolescence B. Adjusting events
3. Useful life, residual value and expected pattern Adjusting events after the reporting period are
of consumption of benefit of depreciable asset those that provide evidence of conditions that
4. Warranty cost exist at the end of reporting period. It is
5. Fair value of asset and liability appropriate to adjust the financial statements for
all events that offer clarity concerning the
D. How to report change in accounting estimate conditions that existed at the end of reporting
The effect of a change in accounting estimate shall be period and that occur prior to the date the
recognized currently and prospectively by including it financial statements are authorized to issue.
in income or loss of: Accordingly, an entity must adjust the amounts
1. The period of change if the change affects that recognized in the financial statements for
period only adjusting events that provide evidence of
2. The period of change and future periods if the conditions that existed at the end of reporting
change affects both period. Examples of adjusting events:
1. Settlement after the reporting period of a
A change in an accounting estimate shall not be court case because it confirms that the entity
accounted for by restating amounts reported in already had a present obligation at the end
financial statements of prior periods. Change in of reporting period
accounting estimates are to be handled currently and 2. Bankruptcy of a customer which occurs after
prospectively, if necessary. the reporting period
3. Sales of inventories after the reporting
Prospective recognition of the effect of a change in period may give evidence about net
accounting estimate means that the change is applied realizable value at reporting period
to transactions, other events and conditions from the 4. The determination after the reporting period
date of change in estimate. of the cost of asset purchased or the
proceeds from asset sold before the end of
E. Prior period errors reporting period
Prior period errors are omissions and misstatements 5. The determination after the reporting period
in the financial statements for one or more periods of the profit sharing or bonus payment if the
arising from a failure to use or misuse of reliable entity has the present obligations at the end
information. Errors may occur as a result of of reporting period to make such payment
mathematical mistakes, mistakes in applying 6. The discovery of fraud or errors that show
accounting policies, misinterpretation of facts, fraud the financial statements were incorrect.
or oversight.
C. Nonadjusting events
How to treat prior period errors Nonadjusting events after the reporting period
Prior period errors shall be corrected retrospectively are those that are indicative of conditions that
by adjusting the opening balances of retained arise after the end of reporting period. However,
earnings and affected assets and liabilities. If an entity does not recognized event after the
comparative statements are presented, the financial reporting period that relate to conditions that
statements of the prior period shall be restated so as only arose after the reporting period. The entity
to reflect the retroactive application of the prior is required only to disclose significant
period errors as a retrospective restatement. nonadjusting events. Examples of nonadjusting
events:
II. PAS 10: EVENTS AFTER THE REPORTING PERIOD 1. Business combination after the reporting
A. Definition of events after reporting periods period
PAS 10, paragraph 3, defines events after the 2. Plan to discontinue an operation
reporting period as those events, whether 3. Major purchase and disposal of asset or
favorable or unfavorable, that occur between the expropriation of major asset by government
end of reporting period and the date on which 4. Destruction of a major production plant by a
the financial statements are authorized to issue. fire after the reporting period
Events after the reporting period are also known 5. Major ordinary share transaction and
as “subsequent events”. Such events may potential ordinary share transaction after the
require either adjustments or disclosure. There reporting period
are 2 types of events after the reporting period,

============================================================================================
Page 2 of 3
 UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL
CALAMBA CITY, LAGUNA, PHILIPPINES

Chapter 11 – PAS 8: ACCTG POLICIES, ESTIMATES & ERRORS EDMUND E. HILARIO, CPA, MBA
PAS 10: Events after the reporting periods 1St SEMESTER 2019 – 2020
=============================================================================
6. Announcing or commencing the
implementation of a major restructuring
7. Abnormally large changes after the reporting
period in asset prices or foreign exchange
rate
8. Entering into significant commitments or
contingent liabilities, for example by issuing
guarantees
9. Commencing major litigation arising from
those events that occurred after the
reporting period
10. Change in tax rate enacted or announced
after the end of reporting period that has a
significant effect on current and deferred tax
asset and liabilities

D. Financial statements authorized for issue

Financial statements are authorized for issue
when the board of directors review the financial
statements and authorized them to issue. In
some cases, an entity is required to submit the
financial statements to the shareholders for
approval after the financial statements have
been issued. In such cases, the financial
statements are authorized for issue on the date
of issue by the board of directors and not on the
date when shareholders approve the financial
statements.

============================================================================================
Page 3 of 3