ACCOUNTING POLICIES, CHANGES IN ACCOUNTING b.

results in reliable and more relevant

ESTIMATES AND ERRORS information
Philippine Accounting Standards (PAS) 8
Examples of changes in accounting policy
Objective and Scope  Change from FIFO cost formula for inventories
PAS 8 prescribes the criteria for selecting, applying, and to the Average cost formula.
changing accounting policies and the accounting and  Change in the method of recognizing revenue
disclosure of changes in accounting policies, changes in from long-term construction contracts.
accounting estimates and correction of prior period  Change to a new policy resulting from the
errors. requirement of a new PFRS.
 Change in financial reporting framework, such
Accounting policies as from PFRS for SMEs to full PFRSs.
 Initial adoption of the revaluation model for
 Accounting policies are “the specific principles,
property, plant, and equipment and intangible
bases, conventions, rules and practices applied
assets.
by an entity in preparing and presenting
 Change from the cost model to the fair value
financial statements.” (PAS 8.5)
model of measuring investment property.
 Accounting policies are the relevant PFRSs
 Change in business model for classifying
adopted by an entity in preparing and
financial assets resulting to reclassification
presenting its financial statements
between financial asset categories.

Guidance in Selecting Accounting Policies

Accounting for Changes in Accounting Policies
1. PFRSs
Changes in accounting policies are accounted for using
2. Judgment When making the judgment:
the following order of priority:
 Management shall consider the following:
 Requirements in other PFRSs dealing with 1. Transitional provision in a PFRS, if any.
similar transactions 2. Retrospective application, in the absence of a
 Conceptual Framework transitional provision
 Management may consider the following: 3. Prospective application, if retrospective
 Pronouncements issued by other standard application is impracticable
setting bodies
 Other accounting literature and industry Retrospective application
practices. Retrospective application means adjusting the opening
balance “of each affected component of equity (e.g
Accounting standards in the Philippines retained earnings) for the earliest prior period
Philippine Financial Reporting Standards (PFRSs) are presented and the other comparative amounts
Standards and Interpretations adopted by the Financial disclosed for each prior period presented as if the new
Reporting Standards Council (FRSC). They comprise: accounting policy had always been applied. (balikan ang
1. Philippine Financial Reporting Standards nakaraan)
(PFRSs);
2. Philippine Accounting Standards (PASs); and Prospective application
3. Interpretations Prospective application means recognizing the effected
of the change in profit or loss, either in:
Changes in Accounting Policies a. the period of change
PAS 8 permits a change in accounting policy only if the b. the period of change and future period of both
change: are affected.
a. is required by a PFRS; or
Note: The beginning balance of retained earning and of an entity’s financial position, financial performance
the previous financial statement are not restated. or cash flows.
(huwag mong balikan ang nakaraan)
Classification of Errors
Change in Accounting Estimates 1. Errors of Commission - is doing something
 A change in accounting estimate is an wrong
adjustment of the carrying amount of an asset 2. Errors of Ommission - not doing something that
or a liability, or the amount of the periodic should have been done
assumption of an asset, that results from the
assessment of the present status of, and Types of Errors according to period of occurrence
expected future benefits and obligation
1. Current Period Errors are errors in the current
associated with, assets and liabilities.
period that were discovered either
 Changes in accounting estimates result from a • during the current period
new information or new developments and, • after the current period before the
accordingly, are not corrections of errors. financial statements were authorized
for issue.
Examples of changes in accounting estimate 3. Prior Period Errors are errors in one or more
 Change in depreciation or amortization prior periods that were only discovered either
methods • during the current period
 Change in estimated useful lives of depreciable • after the current period but before the
assets financial statements were authorized
 Change in estimated residual values of for issue.
depreciable assets
 Change in required allowances for impairment Restrospective Restatement
losses and uncollectible accounts a. Restating the comparative amounts for the
 Changes in fair values less cost to sell of non- prior period(s) presented in which the error
current assets held for sale and biological assets occurred; or
b. If the error occurred before the earliest prior
Accounting for Changes in Accounting Estimates period presented, restating the opening
Changes are accounted for by prospective application balances of assets, liabilities and equity for the
Prospective application means recognizing the effected earliest prior period presented.
of the change in profit or loss, either in:
a. the period of change Retrospective Application  correcting a prior period
b. the period of change and future period of both error as if the error had never occurred.
are affected. Retrospective Restatement  applying a new
accounting policy as if the policy had always been
Errors applied.
Errors include:
1. Mathematical mistakes SUMMARY
2. Mistakes in applying accounting policies
3. Oversights or misinterpretations of facts; and
4. Fraud

Financial Statements do not comply with PFRSs if they

contain either material errors or immaterial errors
made intentionally to achieve a particular presentation