The change in accounting policy will be applied prospectively which is the same to change in accounting estimate. List the name of standard and interpretation which causes the change to company policy. Summary of significant accounting policies (extracts) 41.8 … Management may wish to change policy when it can give a better look at financial statements. Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements. As we know that the revenue and expense will impact from different accounting policies. Following are Examples of accounting policies: Management must consistently review its accounting policies to ensure they comply with the latest pronouncements by IASCF and that the adopted policies result in presentation of most relevant and reliable financial information for users. However, company is allowed to change the existing accounting policy when: The change will require when there is an update in IFRS or other frameworks that the company is following. Amount of adjustments in current and prior period presented, Where retrospective application is impracticable, the conditions that caused the impracticality. Specific transitional guidance of IFRS must be followed in such circumstances. Property Plant and Equipment: Based on accounting standards, we have options to use cost or revaluation model for subsequent measurement. The change must not be done to window-dressing the report otherwise it is considered as a fraud. For example, the longer PPE’s useful life, the less depreciation expense and it will increase profit during the year. Management must review the policy to ensure it is reflected in the actual operation and accounting standards. The retrospective application ensures financial statements are comparable and allow for trend analysis. Example: Retrospective Application A move from fair value due to there no longer being a reliable estimate measure available does not constitute a change in accounting policy and vice versa. A change in accounting policy is required by a new IFRS or a change to an existing IFRS / IAS and the transitional provisions of those standards allow or require prospective application of a new accounting policy. The proposals do specify that a change in the chosen inventory cost formula – e.g. Inventory: IAS allows the company to measure inventory by using specific, FIFO, and weighted average. However, it is very subjective to conclude the change. Change in accounting policy Notes to the. Retrospective application means that entity implements the change in accounting policy as though it had always been applied. As we know, accounting standard is the principle base which does not provide an exact rule to comply. Example 2: depreciation of vehicles. For example if entity was previously using straight-line method of depreciation and now the circumstances require a change in depreciation method then IAS 16 allows such change and such change is just a change in accounting estimate. Moreover, company must set the minimum amount to be capitalized as a fixed asset otherwise, they will classify as an expense. The application of a new accounting policy is in respect of transactions, events and circumstances that are substantially different from those that transpired in the past. Since accounting standards represent items in many ways, proper disclosure of the accounting policy is essential. 20X2 – lower closing inventory under AVCO would mean lower asset and lower profit in 20X2. The retrospective application of a change in accounting policy is impracticable. It easy for the readers to compare the financial statement. The retrospective application of a change in accounting policy is impracticable. 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