HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

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Objective

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The 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 in accounting estimates and corrections of errors. The Standard is intended to enhance the relevance and reliability of an entity’s financial statements, and the comparability of those financial statements over time and with the financial statements of other entities. (HKAS 8.1)

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Scope

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This Standard shall be applied in selecting and applying accounting policies, and accounting for changes in accounting policies, changes in accounting estimates and corrections of prior period errors. (HKAS 8.3)

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Definitions

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A change in accounting estimate is an adjustment of the carrying amount of an asset or a liability, or the amount of the periodic consumption of an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities. Changes in accounting estimates result from new information or new developments and, accordingly, are not corrections of errors. (HKAS 8.5)

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Prior period errors are omissions from, and misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:

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• was available when financial statements for those periods were authorised for issue; and

• could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements.

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Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud.

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Accounting policies

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Consistency of accounting policies

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An entity shall select and apply its accounting policies consistently for similar transactions, other events and conditions, unless a HKFRS specifically requires or permits categorisation of items for which different policies may be appropriate. If a HKFRS requires or permits such categorisation, an appropriate accounting policy shall be selected and applied consistently to each category. (HKAS 8.13)

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Changes in accounting policies

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An entity shall change an accounting policy only if the change: (HKAS 8.14)

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• is required by a HKFRS; or

• results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity’s financial position, financial performance or cash flows.

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Applying changes in accounting policies

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Disclosure

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When initial application of a HKFRS has an effect on the current period or any prior period, would have such an effect except that it is impracticable to determine the amount of the adjustment, or might have an effect on future periods, an entity shall disclose: (HKAS 8.28)

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• the title of the HKFRS

• when applicable, that the change in accounting policy is made in accordance with its transitional provisions;

• the nature of the change in accounting policy;

• when applicable, a description of the transitional provisions;

• when applicable, the transitional provisions that might have an effect on future periods;

• for the current period and each prior period presented, to the extent practicable, the amount of the adjustment:

  • for each financial statement line item affected; and

  • if HKAS 33 Earnings per Share applies to the entity, for basic and diluted earnings per share;

• ​the amount of the adjustment relating to periods before those presented, to the extent practicable; and

• if retrospective application is impracticable for a particular prior period, or for periods before those presented, the circumstances that led to the existence of that condition and a description of how and from when the change in accounting policy has been applied.

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Financial statements of subsequent periods need not repeat these disclosures.

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When a voluntary change in accounting policy has an effect on the current period or any prior period, would have an effect on that period except that it is impracticable to determine the amount of the adjustment, or might have an effect on future periods, an entity shall disclose: (HKAS 8.29)

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• the nature of the change in accounting policy;

• the reasons why applying the new accounting policy provides reliable and more relevant information;

• for the current period and each prior period presented, to the extent practicable, the amount of the adjustment:

  • for each financial statement line item affected; and

  • if HKAS 33 applies to the entity, for basic and diluted earnings per share;

• the amount of the adjustment relating to periods before those presented, to the extent practicable; and

• if retrospective application is impracticable for a particular prior period, or for periods before those presented, the circumstances that led to the existence of that condition and a description of how and from when the change in accounting policy has been applied.

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Financial statements of subsequent periods need not repeat these disclosures.

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When an entity has not applied a new HKFRS that has been issued but is not yet effective, the entity shall disclose: (HKAS 8.30)

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• this fact; and

• known or reasonably estimable information relevant to assessing the possible impact that application of the new HKFRS will have on the entity’s financial statements in the period of initial application.

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In complying with paragraph 30, an entity considers disclosing: (HKAS 8.31)

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• the title of the new HKFRS;

• the nature of the impending change or changes in accounting policy;

• the date by which application of the HKFRS is required;

• the date as at which it plans to apply the HKFRS initially; and

• either:

  • ​a discussion of the impact that initial application of the HKFRS is expected to have on the entity’s financial statements; or

  • if that impact is not known or reasonably estimable, a statement to that effect.

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Changes in accounting estimates

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The use of reasonable estimates is an essential part of the preparation of financial statements and does not undermine their reliability. (HKAS 8.33)

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Disclosure

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An entity shall disclose the nature and amount of a change in an accounting estimate that has an effect in the current period or is expected to have an effect in future periods, except for the disclosure of the effect on future periods when it is impracticable to estimate that effect. (HKAS 8.39)

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If the amount of the effect in future periods is not disclosed because estimating it is impracticable, an entity shall disclose that fact. (HKAS 8.40)

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Errors

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An entity shall correct material prior period errors retrospectively in the first set of financial statements authorised for issue after their discovery by: (HKAS 8.42)

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• restating the comparative amounts for the prior period(s) presented in which the error occurred; or

• if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented.

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Disclosure of prior period errors

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In applying paragraph 42, an entity shall disclose the following: (HKAS 8.49)

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• the nature of the prior period error;

• for each prior period presented, to the extent practicable, the amount of the correction:

  • ​for each financial statement line item affected; and

  • if HKAS 33 applies to the entity, for basic and diluted earnings per share;​

• ​the amount of the correction at the beginning of the earliest prior period presented; and

• if retrospective restatement is impracticable for a particular prior period, the circumstances that led to the existence of that condition and a description of how and from when the error has been corrected.

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