AASB 108August 2015AASB StandardAccounting Policies, Changes inAccounting Estimates and ErrorsFederal Register of Legislative Instruments F2015L01565
Obtaining a copy of this Accounting StandardThis Standard is available on the AASB website: www.aasb.gov.au.Australian Accounting Standards BoardPO Box 204Collins Street WestVictoria 8007AUSTRALIAPhone:E-mail:Website:(03) 9617 email@example.comOther enquiriesPhone:E-mail:(03) 9617 firstname.lastname@example.orgCOPYRIGHT Commonwealth of Australia 2015This AASB Standard contains IFRS Foundation copyright material. Reproduction within Australia in unaltered form(retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of anacknowledgment of the source. Requests and enquiries concerning reproduction and rights for commercial purposeswithin Australia should be addressed to The Director of Finance and Administration, Australian Accounting StandardsBoard, PO Box 204, Collins Street West, Victoria 8007.All existing rights in this material are reserved outside Australia. Reproduction outside Australia in unaltered form(retaining this notice) is permitted for personal and non-commercial use only. Further information and requests forauthorisation to reproduce for commercial purposes outside Australia should be addressed to the IFRS Foundation atwww.ifrs.org.ISSN 1036-4803AASB 1082Federal Register of Legislative Instruments F2015L01565COPYRIGHT
ContentsCOMPARISON WITH IAS 8ACCOUNTING STANDARDAASB 108 ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORSOBJECTIVESCOPEDEFINITIONSACCOUNTING POLICIESSelection and application of accounting policiesConsistency of accounting policiesChanges in accounting policiesApplying changes in accounting policiesRetrospective applicationLimitations on retrospective applicationDisclosureCHANGES IN ACCOUNTING ESTIMATESDisclosureERRORSLimitations on retrospective restatementDisclosure of prior period errorsIMPRACTICABILITY IN RESPECT OF RETROSPECTIVE APPLICATION ANDRETROSPECTIVE RESTATEMENTEFFECTIVE DATEWITHDRAWAL OF OTHER PRONOUNCEMENTSCOMMENCEMENT OF THE LEGISLATIVE INSTRUMENTWITHDRAWAL OF AASB PRONOUNCEMENTSAPPENDIXA Australian reduced disclosure requirementsDELETED IAS 8 TEXTfrom s56.2AVAILABLE ON THE AASB WEBSITEImplementation Guidance on IAS 8Basis for Conclusions on IAS 8Australian Accounting Standard AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors is setout in paragraphs 1 – Aus56.2 and Appendix A. All the paragraphs have equal authority. Paragraphs in bold typestate the main principles. AASB 108 is to be read in the context of other Australian Accounting Standards, includingAASB 1048 Interpretation of Standards, which identifies the Australian Accounting Interpretations, and AASB 1057Application of Australian Accounting Standards.AASB 1083Federal Register of Legislative Instruments F2015L01565CONTENTS
Comparison with IAS 8AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors incorporates IAS 8 AccountingPolicies, Changes in Accounting Estimates and Errors issued by the International Accounting Standards Board(IASB). Australian-specific paragraphs (which are not included in IAS 8) are identified with the prefix “Aus” or“RDR”. Paragraphs that apply only to not-for-profit entities begin by identifying their limited applicability.Tier 1For-profit entities complying with AASB 108 also comply with IAS 8.Not-for-profit entities’ compliance with IAS 8 will depend on whether any “Aus” paragraphs that specifically apply tonot-for-profit entities provide additional guidance or contain applicable requirements that are inconsistent with IAS 8.Tier 2Entities preparing general purpose financial statements under Australian Accounting Standards – Reduced DisclosureRequirements (Tier 2) will not be in compliance with IFRSs.AASB 1053 Application of Tiers of Australian Accounting Standards explains the two tiers of reporting requirements.AASB 1084Federal Register of Legislative Instruments F2015L01565COMPARISON
Accounting Standard AASB 108The Australian Accounting Standards Board makes Accounting Standard AASB 108 Accounting Policies, Changes inAccounting Estimates and Errors under section 334 of the Corporations Act 2001.Kris PeachChair – AASBDated 7 August 2015Accounting Standard AASB 108Accounting Policies, Changes in Accounting Estimates and ErrorsObjective1The objective of this Standard is to prescribe the criteria for selecting and changing accounting policies,together with the accounting treatment and disclosure of changes in accounting policies, changes inaccounting estimates and corrections of errors. The Standard is intended to enhance the relevance andreliability of an entity’s financial statements, and the comparability of those financial statements over timeand with the financial statements of other entities.2Disclosure requirements for accounting policies, except those for changes in accounting policies, are set outin AASB 101 Presentation of Financial Statements.Scope3This Standard shall be applied in selecting and applying accounting policies, and accounting forchanges in accounting policies, changes in accounting estimates and corrections of prior perioderrors.4The tax effects of corrections of prior period errors and of retrospective adjustments made to apply changesin accounting policies are accounted for and disclosed in accordance with AASB 112 Income Taxes.Definitions5The following terms are used in this Standard with the meanings specified:Accounting policies are the specific principles, bases, conventions, rules and practices applied by anentity in preparing and presenting financial statements.A change in accounting estimate is an adjustment of the carrying amount of an asset or a liability, orthe amount of the periodic consumption of an asset, that results from the assessment of the presentstatus of, and expected future benefits and obligations associated with, assets and liabilities. Changesin accounting estimates result from new information or new developments and, accordingly, are notcorrections of errors.Material Omissions or misstatements of items are material if they could, individually or collectively,influence the economic decisions that users make on the basis of the financial statements. Materialitydepends on the size and nature of the omission or misstatement judged in the surroundingcircumstances. The size or nature of the item, or a combination of both, could be the determiningfactor.Prior period errors are omissions from, and misstatements in, the entity’s financial statements for oneor more prior periods arising from a failure to use, or misuse of, reliable information that:(a)was available when financial statements for those periods were authorised for issue; and(b)could reasonably be expected to have been obtained and taken into account in thepreparation and presentation of those financial statements.Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies,oversights or misinterpretations of facts, and fraud.Retrospective application is applying a new accounting policy to transactions, other events andconditions as if that policy had always been applied.AASB 1085Federal Register of Legislative Instruments F2015L01565STANDARD
Retrospective restatement is correcting the recognition, measurement and disclosure of amounts ofelements of financial statements as if a prior period error had never occurred.Impracticable Applying a requirement is impracticable when the entity cannot apply it after makingevery reasonable effort to do so. For a particular prior period, it is impracticable to apply a change inan accounting policy retrospectively or to make a retrospective restatement to correct an error if:(a)the effects of the retrospective application or retrospective restatement are notdeterminable;(b)the retrospective application or retrospective restatement requires assumptions about whatmanagement’s intent would have been in that period; or(c)the retrospective application or retrospective restatement requires significant estimates ofamounts and it is impossible to distinguish objectively information about those estimatesthat:(i)provides evidence of circumstances that existed on the date(s) as at which thoseamounts are to be recognised, measured or disclosed; and(ii)would have been available when the financial statements for that prior periodwere authorised for issue from other information.Prospective application of a change in accounting policy and of recognising the effect of a change in anaccounting estimate, respectively, are:6(a)applying the new accounting policy to transactions, other events and conditions occurringafter the date as at which the policy is changed; and(b)recognising the effect of the change in the accounting estimate in the current and futureperiods affected by the change.Assessing whether an omission or misstatement could influence economic decisions of users, and so bematerial, requires consideration of the characteristics of those users. The Framework for the Preparationand Presentation of Financial Statements states in paragraph 251 that ‘users are assumed to have areasonable knowledge of business and economic activities and accounting and a willingness to study theinformation with reasonable diligence.’ Therefore, the assessment needs to take into account how users withsuch attributes could reasonably be expected to be influenced in making economic decisions.Accounting policiesSelection and application of accounting policies7When an Australian Accounting Standard2 specifically applies to a transaction, other event orcondition, the accounting policy or policies applied to that item shall be determined by applying theStandard.8Australian Accounting Standards set out accounting policies that the AASB has concluded result infinancial statements containing relevant and reliable information about the transactions, other events andconditions to which they apply. Those policies need not be applied when the effect of applying them isimmaterial. However, it is inappropriate to make, or leave uncorrected, immaterial departures fromAustralian Accounting Standards to achieve a particular presentation of an entity’s financial position,financial performance or cash flows.9Australian Accounting Standards are accompanied by guidance to assist entities in applying theirrequirements. All such guidance states whether it is an integral part of Australian Accounting Standards.Guidance that is an integral part of the Australian Accounting Standards is mandatory. Guidance that is notan integral part of the Australian Accounting Standards does not contain requirements for financialstatements.1In December 2013 the AASB amended the Framework for the Preparation and Presentation of Financial Statements. The Frameworkis identified in AASB 1048 Interpretation of Standards. Paragraph 25 was superseded by Chapter 3 of the Framework.2[Aus] The term ‘Australian Accounting Standards’ refers to Standards (including Interpretations) made by the AASB that apply to anyreporting period beginning on or after 1 January 2005. In this context, the term encompasses Australian Accounting Standards –Reduced Disclosure Requirements, which some entities are permitted to apply in accordance with AASB 1053 Application of Tiers ofAustralian Accounting Standards in preparing general purpose financial statements.AASB 1086Federal Register of Legislative Instruments F2015L01565STANDARD
101112In the absence of an Australian Accounting Standard that specifically applies to a transaction, otherevent or condition, management shall use its judgement in developing and applying an accountingpolicy that results in information that is:(a)relevant to the economic decision-making needs of users; and(b)reliable, in that the financial statements:(i)represent faithfully the financial position, financial performance and cash flows ofthe entity;(ii)reflect the economic substance of transactions, other events and conditions, andnot merely the legal form;(iii)are neutral, ie free from bias;(iv)are prudent; and(v)are complete in all material respects.In making the judgement described in paragraph 10, management shall refer to, and consider theapplicability of, the following sources in descending order:(a)the requirements in Australian Accounting Standards dealing with similar and relatedissues; and(b)the definitions, recognition criteria and measurement concepts for assets, liabilities, incomeand expenses in the Framework.3In making the judgement described in paragraph 10, management may also consider the most recentpronouncements of other standard-setting bodies that use a similar conceptual framework to developaccounting standards, other accounting literature and accepted industry practices, to the extent thatthese do not conflict with the sources in paragraph 11.Consistency of accounting policies13An entity shall select and apply its accounting policies consistently for similar transactions, otherevents and conditions, unless an Australian Accounting Standard specifically requires or permitscategorisation of items for which different policies may be appropriate. If an Australian AccountingStandard requires or permits such categorisation, an appropriate accounting policy shall be selectedand applied consistently to each category.Changes in accounting policies14An entity shall change an accounting policy only if the change:(a)is required by an Australian Accounting Standard; or(b)results in the financial statements providing reliable and more relevant information aboutthe effects of transactions, other events or conditions on the entity’s financial position,financial performance or cash flows.15Users of financial statements need to be able to compare the financial statements of an entity over time toidentify trends in its financial position, financial performance and cash flows. Therefore, the sameaccounting policies are applied within each period and from one period to the next unless a change inaccounting policy meets one of the criteria in paragraph 14.16The following are not changes in accounting policies:(a)the application of an accounting policy for transactions, other events or conditions thatdiffer in substance from those previously occurring; and(b)the application of a new accounting policy for transactions, other events or conditions thatdid not occur previously or were immaterial.17The initial application of a policy to revalue assets in accordance with AASB 116 Property, Plant andEquipment or AASB 138 Intangible Assets is a change in an accounting policy to be dealt with as arevaluation in accordance with AASB 116 or AASB 138, rather than in accordance with thisStandard.18Paragraphs 19–31 do not apply to the change in accounting policy described in paragraph 17.3In December 2013 the AASB amended the Framework for the Preparation and Presentation of Financial Statements.AASB 1087Federal Register of Legislative Instruments F2015L01565STANDARD
Applying changes in accounting policies19Subject to paragraph 23:(a)an entity shall account for a change in accounting policy resulting from the initialapplication of an Australian Accounting Standard in accordance with the specifictransitional provisions, if any, in that Australian Accounting Standard; and(b)when an entity changes an accounting policy upon initial application of an AustralianAccounting Standard that does not include specific transitional provisions applying to thatchange, or changes an accounting policy voluntarily, it shall apply the changeretrospectively.20For the purpose of this Standard, early application of an Australian Accounting Standard is not a voluntarychange in accounting policy.21In the absence of an Australian Accounting Standard that specifically applies to a transaction, other event orcondition, management may, in accordance with paragraph 12, apply an accounting policy from the mostrecent pronouncements of other standard-setting bodies that use a similar conceptual framework to developaccounting standards. If, following an amendment of such a pronouncement, the entity chooses to change anaccounting policy, that change is accounted for and disclosed as a voluntary change in accounting policy.Retrospective application22Subject to paragraph 23, when a change in accounting policy is applied retrospectively in accordancewith paragraph 19(a) or (b), the entity shall adjust the opening balance of each affected component ofequity for the earliest prior period presented and the other comparative amounts disclosed for eachprior period presented as if the new accounting policy had always been applied.Limitations on retrospective application23When retrospective application is required by paragraph 19(a) or (b), a change in accounting policyshall be applied retrospectively except to the extent that it is impracticable to determine either theperiod-specific effects or the cumulative effect of the change.24When it is impracticable to determine the period-specific effects of changing an accounting policy oncomparative information for one or more prior periods presented, the entity shall apply the newaccounting policy to the carrying amounts of assets and liabilities as at the beginning of the earliestperiod for which retrospective application is practicable, which may be the current period, and shallmake a corresponding adjustment to the opening balance of each affected component of equity forthat period.25When it is impracticable to determine the cumulative effect, at the beginning of the current period, ofapplying a new accounting policy to all prior periods, the entity shall adjust the comparativeinformation to apply the new accounting policy prospectively from the earliest date practicable.26When an entity applies a new accounting policy retrospectively, it applies the new accounting policy tocomparative information for prior periods as far back as is practicable. Retrospective application to a priorperiod is not practicable unless it is practicable to determine the cumulative effect on the amounts in boththe opening and closing statements of financial position for that period. The amount of the resultingadjustment relating to periods before those presented in the financial statements is made to the openingbalance of each affected component of equity of the earliest prior period presented. Usually the adjustmentis made to retained earnings. However, the adjustment may be made to another component of equity (forexample, to comply with an Australian Accounting Standard). Any other information about prior periods,such as historical summaries of financial data, is also adjusted as far back as is practicable.27When it is impracticable for an entity to apply a new accounting policy retrospectively, because it cannotdetermine the cumulative effect of applying the policy to all prior periods, the entity, in accordance withparagraph 25, applies the new policy prospectively from the start of the earliest period practicable. Ittherefore disregards the portion of the cumulative adjustment to assets, liabilities and equity arising beforethat date. Changing an accounting policy is permitted even if it is impracticable to apply the policyprospectively for any prior period. Paragraphs 50–53 provide guidance on when it is impracticable to applya new accounting policy to one or more prior periods.AASB 1088Federal Register of Legislative Instruments F2015L01565STANDARD
Disclosure28When initial application of an Australian Accounting Standard has an effect on the current period orany prior period, would have such an effect except that it is impracticable to determine the amount ofthe adjustment, or might have an effect on future periods, an entity shall disclose:(a)the title of the Australian Accounting Standard;(b)when applicable, that the change in accounting policy is made in
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