Conceptual principles of financial reporting

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Objective: To establish criteria for selecting and applying accounting policies, and to correct errors and report changes.

Accounting policies are the principles, methods, and rules used by an entity in preparing financial statements.
Applied consistently to similar transactions.

Change in accounting policies:

Only if:

• IFRS is required, or
• results in more reliable and relevant information.
  Application — Retrospective.

Changes in estimates:

• Resulting from new information;
• Applied Prospectively (current and future periods only).

Prior Period Errors:

Omissions, misapplications of principles, arithmetic errors.
Correction — Retrospective (restatement of comparatives and equity balances).

Comparison:

Type of Change	Reason	Application
Accounting Policy	New Standard / Presentation Improvement	Retrospective
Valuation	New Information	Prospective
Error	Incorrect Data	Retrospective

IAS 10 Events After the Reporting Date

Objective: To determine which events occurring after the reporting date require adjustment to the financial statements.

Reporting Date: End of the reporting period

Authorization Date: The date management authorized the financial statements.

Event Types:

Type	Description	Example	Reflection
Adjusting	confirm conditions that existed on the reporting date	customer bankruptcy, court decision, inventory valuation update	reporting adjustment
Non-adjusting	reflect new circumstances after the reporting date	fire, share issue, dividend declaration	expand in Notes, do not adjust.

Dividends declared after the reporting date — not adjusted, only disclosed.

IAS 2 — Inventories

Inventories — assets held for sale, in production, or as raw materials.

Valuation:

• Initially — at cost;
• Subsequently — at the lower of cost and net realizable value (NRV).

Item	Included in cost	Not included
Acquisition	Purchase price, duties, delivery	Trade discounts
Processing	Direct labor costs, depreciation, OPR	Losses Excessive
Other	Other direct costs	Administrative, sales

Disposal valuation methods:

• FIFO
• Weighted average cost
• Specific identification (for unique assets)

NRV = Selling price – Costs of completion and disposal