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EXAMPLES

ACCOUNTING ESTIMATES

ABC Co. acquired a new brand cost RM10 M on 1/1/2001. The useful life was determined as indefinite. On 1/1/2004 ABC Co. reviewed the economic life and determined it as 4 years.

- There is no amortization of the brand till year 2004 as its life was indefinite. On review, it was determined that the life is now 4 years from 2004. Therefore, the brand will be amortized over 4 years beginning 2004. Amortization will be charged RM2.5 M each year. Carrying amount at 31/12/2004 will be RM7.5 M ( RM10 M - RM2.5 M). Change from indefinite to finite life was changes in accounting estimates.

examples of areas:

Prospective application means

  • provision for bad debts
  • economic life of fixed assets
  • depreciation rate
  • applying the new accounting estimates to transactions after the date of the estimates is change
  • recognizing the effect of the change in the current and future periods affected

Rules is to apply prospectively

by including the P/L in:

  • the period of the changes if the change affect that period only - bad debts
  • the period of the changes and future periods if the changes affect both - economic life of an asset

MFRS 108 ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND

ERRORS

CHANGES IN

ACCOUNTING POLICIES

2 EVENTS NOT A CHANGING IN ACCOUNTING POLICIES

Can entity change its

Accounting Policies???

  • Application on transaction that differ in substance from those previously occurring
  • Applying new accounting policy for transaction that did not occur previously

Why must change?

YES ! once select the Accounting Policies, apply it consistently

ERRORS

It's necessary:

  • Required by Standards
  • Provide more reliable and relevant information

RETROSPECTIVE

Accounting Policies

Mistakes in applying accounting policies

ACCOUNTING TREATMENT

RETROSPECTIVE

Accounting Treatments

Misinterpentation of facts

Adjustment is done as if the new

accounting policy had always been applied before

Mathemethical mistakes

eg : 200M + 200M = 100 M

Must adjust the

opening balance of each affected component for the earliest prior period presented

Oversights

- Correct the material error RESTROPECTIVELY in the first set of financial statements authorised for issue after their discovery

Present all other comparative amounts disclosed for each prior period

Fraud

Selection of

Accounting

Policies

FUNDAMENTAL ERRORS

When the Accounting Policies are

selected

How to

select which Accounting Policies to apply?

  • Restating the comparative amount for the period
  • if it happen at the earliest prior period
  • Information are RELEVANT
  • Information conveyed is RELIABLE where Financial Statements

Prudence

ASSETS

restating the opening balance of

Neutral, Not Bias

LIABILITIES

Reflect Economic SUBSTANCE of transaction

EQUITY

Faithful

Complete in all material

  • If it IMPRACTICABLE to determine the
  • Refer to relevant standards or interpretation
  • Guidance issued by MASB
  • period specifics of an error
  • comparative information for one or more prior period

MFRS 108

GUIDELINES FOR:

  • Selecting and changing accounting policies
  • Accounting Treatment
  • Disclosure

Accounting Policies

Fundamental Errors

- an entity may discover errors during the current period which relates to a prior period

MFRS 108

ommisions from misstatements in the entity's financial statements

  • Specific principle
  • Bases
  • Conventions for preparing and
  • Rules and presenting financial
  • Pratices statements

Changes In Accounting Estimates

or misuse of reliable information

  • MFRS 108

adjustments of the - carrying amount of asset/liability - amount of the periodic consumption of an asset

may have to be revised - changes regarding the circumstances on which the estimates were based as a result of new information, or more experiences or subsequent development

revision of estimates is not correction of errors

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