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Agenda
Objective
Selecting and applying accounting policies Accounting for changes in: - accounting policies - accounting estimates Corrections of material prior period errors
Objective
PSAK 25 prescribes the: selection criteria used in determining accounting policies, as well as the accounting treatment and disclosure of changes to accounting policies;
requirements for changes to accounting estimates and the accounting treatment and disclosure of such changes; definition of errors and the accounting treatment and disclosure of error.
Objective
The application of a standard set of criteria obviously ensures consistency amongst different entities however, it also ensures that consistency exists between the current and previous financial statements of a particular entity.
Agenda
Objective
Selecting and applying accounting policies Accounting for changes in: - accounting policies - accounting estimates Corrections of material prior period errors
Provide guidance in the selection of accounting policies when there are no specific SAKs applicable for transactions, events or other conditions. Accounting policies for a period should be selected and applied consistently for similar transactions, events and circumstances unless a Standard or Interpretation requires or permits a categorisation of items for which different policies may be appropriate
is required by PSAK; or results in a more reliable and relevant presentation in the financial statements of the effects of transactions or other events on the entitys financial position, performance or cash flows
Note: Early adoption of a policy to reassess assets in accordance with PSAK 16: Fixed assets or PSAK 19: Intangible assets which will result to adoption of revaluation method is considered a change in accounting policy that should be dealt with under PSAK 16 or PSAK 19 and not in accordance with PSAK 25.
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Select and apply accounting policy consistently for similar transactions, other events and conditions
May adopt different policies where - a Standard or an Interpretation requires or permits categorisation of items for which different policies may be appropriate - but accounting policy shall be selected and applied consistency to each category
Disclose the judgements made by management that have the most significant effect on the amounts recognised in the financial statements Disclose information about key assumptions concerning the future, and other key sources of estimation uncertainty - disclose for those assets and liabilities their nature; and their carrying amount as of the balance sheet date
An entity constructs its own property, plant & equipment. A small proportion (Rp 100mio) of the costs that are capitalised each year for these assets do not meet the definition of cost as set out in PSAK 16. These costs are immaterial both in the context of the entitys profits and balance sheet position, is it appropriate for the entity not to apply the accounting policy for PP&E to them?
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PSAK 25 states that the accounting policies in PSAKs need not be applied when the effect of applying them is immaterial. In this case, it can be argued that as applying PSAK to these amounts would be immaterial in the context of both the balance sheet and income statement, then this would be acceptable under the materiality provisions of PSAK 25.
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Agenda
Objective
Selecting and applying accounting policies Accounting for changes in: - accounting policies - accounting estimates Corrections of material prior period errors
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No
Apply new accounting policy as at the beginning of the earliest period for which retrospective application is practicable
Apply new accounting policy prospectively from the earliest date practicable and adjust the comparative information
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Agenda
Objective
Selecting and applying accounting policies Accounting for changes in: - accounting policies - accounting estimates Corrections of material prior period errors
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Errors
Prior period errors: Omission from, and misstatements in, the financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that: - available when financial statements for those periods were authorised for issue; and - reasonably expected to have been obtained and taken into account in the preparation and presentation of those financial statements
Such errors include the effects of mathematical mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud
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Case Example 2
Upon investigation, the new Chief Financial Officer of PT Pialang Kece discovered that the entity had not depreciated its equipment since purchase 3 years ago (2006). The entity presents current year (2009) and the prior year (2008) on the financial statements. Should this have been classified as an error, and if so, how would be the error have been accounted for? What would the outcome have been?
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Case Example 2
Answer The error should be accounted for retrospectively, by either: Restating comparative amounts for the prior period(s) in which the error occurred, or If the error occurred before the earliest prior period presented, restating the opening balance of retained earnings for the earliest prior period presented. This ensures the financial statements are presented as if the error have never occurred.
Due to the fact that the error occurred before the earliest period presented (the error occurred in 2006, which is before the earliest period presented 2008), the opening balance of retained earnings for the earliest period presented (2008) should be restated.
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Restate the opening balances of assets and liabilities and equity for the earliest period for which retrospective restatement is practicable
Restate comparative information to correct the error prospectively from the earliest date practicable
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Effective date
Effective for financial statements for periods beginning on or after 1 January 2011.
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