Week 11 Everything

Question 1

Prior period errors (AASB 108)

Answer 1

Omissions or misstatements in the entity’s financial statements. Referred to for one or more prior periods. Caused by failure to use, or misuse of (mistakes), reliable information.

Question 2

Prior period errors (AASB 108)

The information that was mistakenly provided:

Answer 2

Was available at the time the financial statements for those
periods were authorised for issue, and could reasonably have been obtained and taken into account in the preparation and presentation of the financial statements.

Question 3

9-4
Prior period errors
Examples of such prior period errors include:

Answer 3

➢mathematical mistakes, (e.g. record incorrect amount)

➢ Omissions (failure to record), Duplicate accounting entries

➢ Misclassification (recording in incorrect account)

➢ Mistakes in applying accounting policies,

➢ fraud

Question 4

How to account for prior period errors, once they are discovered?

Answer 4

The prior period errors are to be corrected retrospectively. If the error relates to last year, for which comparative information is provided, correct the comparative information for last year. If the error relates to an earlier year, for which comparative information is not provided, adjust the opening retained earnings, opening assets and/or liabilities for the last year. The error is not included in the current period’s statement of profit and loss and other comprehensive income.

Question 5

Changes in accounting estimates (AASB 108)

Answer 5

When financial reports are prepared many estimates are made. But if circumstances change or new information is obtained, the estimates may be changed. Change of accounting estimates is NOT a correction of an error, because the original estimate was made using the best information available at that time.

Question 6

Examples of estimates are:

Answer 6

➢ useful life of assets and residual value of depreciable assets;

➢ net realisable value of obsolete inventory;

➢ bad debts;

➢ warranty expenses.

Question 7

Changes in accounting estimates are accounted for

Answer 7

prospectively. The change may affect:

Current period only (recognise in period of change)

Current and future periods (recognise in period of change and future periods)

Additional disclosure required in case of material
changes in accounting estimates, about nature and
amount of the change.

Question 8

Accounting policies definition (AASB 108):

Answer 8

‘Accounting Policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements’. A change in accounting policies is a change in the principles or rules
applied in the preparation of financial statements.

Question 9

AASB108.14 requires an entity to change its accounting policy only in the following two situations:

Answer 9

The change is required to comply with a new or revised AASB standard or interpretation,

The change is required because it will result in more reliable and relevant information being provided in the financial statements.

Question 10

Changes in accounting policies

How to account for a change in accounting policies

Answer 10

A change in accounting policies is applied retrospectively (unless a new accounting standard or interpretation specifies transitional accounting procedures). The comparative information, which is provided for last year is adjusted as if the new accounting policy had always been applied. The opening retained earnings, opening assets and/or liabilities for last year are also adjusted as if the new accounting policy had always been applied.

Question 11

Changes in accounting policies
How to account for a change in accounting policies

Additional disclosure

Answer 11

Additional disclosure required for changes in accounting policies: title of new or revised AASB standard or interpretation; a description of the change in accounting policy; the amount of the adjustments for the current year and for each last year, and the opening balances for the last year

Question 12

9-16
What is an event after the reporting period?
Event after the reporting period (definition)

Answer 12

Are those events or transactions, favourable and unfavourable, that occur between the reporting date and the date when the financial statements are authorised for issue

Question 13

Material events can occur

Answer 13

after the end of the reporting period but before the date the financial report is authorised for issue

Question 14

Event after the reporting period

The non-disclosure

Answer 14

of such events can make the financial report misleading, and affect decision making by users based on the financial statements

Question 15

Two types of after reporting period events

Answer 15

Adjusting events

Non-adjusting events

Question 16

Adjusting events

Answer 16

If the event provides evidence of, or further evidence about, conditions that existed at the end of the reporting period. An adjustment is required to the amounts recognised in the financial statements. The notes to the accounts that relate to those conditions, are also required to be adjusted.

Question 17

If management determines, after the reporting period, that the entity is no longer a going concern:

Answer 17

The financial statements of the entity must not be prepared on the going-concern basis, the financial statements must be prepared on a liquidation basis. If the going concern assumption is no longer appropriate, the effect is so pervasive that a fundamental change to basis of accounting is required, rather than adjustments to the financial statements

Question 18

Dividends declared after the reporting date:

Answer 18

must not be recognised as a liability in the statement of financial position. If dividends are declared after the reporting period but before the financial statements are authorised
for issue, the dividends are not recognised as a liability at the end of the reporting period because no obligation exists at that time. Such dividends
are disclosed in the notes in accordance with AASB101.137(a). They are a non adjusting event

Question 19

Non-adjusting events

Answer 19

Provides evidence about a completely new condition occurring after reporting date, as distinct from conditions that existed on reporting date. An entity must not adjust the amounts recognised in its financial statements to reflect non adjusting events after the reporting period. Material non adjusting events must be disclosed in the notes to the accounts, disclosing the nature and financial effect of the event.

Question 20

Examples of non adjusting events:

Answer 20

➢ Major business combination or an entity disposing of a major subsidiary after reporting date

➢ Announcing a plan to discontinue an operation after reporting date

Question 21

Other examples of adjusting events:

Answer 21

➢ Determination after reporting date of cost of assets, purchased prior to reporting date.

➢ Determination after reporting date of amount of profit sharing or bonus payments.