IAS 8---some queries

[insaan]

para 8.24 , 8.25 , 8.27
para 8.24 tell us
When determination of period specific effects is impracticable --- retrospectively from earliest practicable period 8.24

para 8.25 tells us
When cumulative effect impracticable to determine, at the beginning of the current period --- prospective application from earliest date practicable 8.25

para 8.27 tells us
When it is impracticable for an entity to apply a new accounting policy retrospectively, because it cannot determine the cumulative effect of applying the policy to all prior periods, the entity, in accordance with paragraph 25, 8.27
Applies the new policy prospectively from the start of the earliest period practicable

QUESTION NO 1
y para 8.27,isn't this a repetition of para 8.25?if this is not how is it different?

QUESTION NO 2
plz give me examples for each of these 3 para so dat they become clear to me....

QUESTION NO 3
how is it possible that determination of period specific effect is indeterminable but cumulative effect determination possible,e.g,yr end is 30 dec 2006,we can't determine period specific effect of yr 2002,now how is it possible that we determine cumulative effect upto 1jan 2005 or 1 jan 2006?????

[insaan]

hey dear i got the reply
a nice reply
i wud like to share wid u people
here it is;

Dear Junaid

Your queries are interesting and these queries convinced me to read the relevant paragraphs of IAS 8. By the way, a point wise reply to your queries is as under.

Answer to Question number 1.

No doubt that the requirements in Para 8.27 are same as per the requirements in para 8.25, however, you should note that para 8.25 is typed in bold and italics. All paragraphs typed in accounting standards as well as IFRS are the standards that represents requirements. The other paragraphs typed in normal fonts are interpretation of the bold and italic paragraphs and contains examples and guidelines of the standards. The theme of both paragraphs is that when it is impracticable to determine the aggregate cumulitive effect of change in accounting policy and retrospective application is not possible, it should be applied prospectively. Guidance on impracticability is laid down in paras 50-53 of the standard.

Answer to Question Number 2.

You required examples of the cases when it is impractible for an organization to determine the period specific effect or cumulitive effect of changing an accounting policy. One example regarding impractibality to determine the cumulitive effect is laid down in Appendix to the IAS 8. For you reference i am attaching this example in MS word format. An example regarding impractibility to determine the period specific effect may be as follows.

In 2006, X company decides to change its accounting policy for carrying its available for sale investments at fair value and recognizing the resulting gain as a change in equity. Previously such gain was being recognized as profit or loss for a period. The company acquired available for sale investments in 2000 at a cost of say Rs. 100,000 and there was no movement (that is sale and purchase) in this account since then. Now it is possible for the company to compute the aggregate effect as at December 2006 since by valuing number of shares in hand as at December 2006 at market value and deducting the cost of acquisition as at 2000 from the market value. However it will not be possible to determine the period specific effect due to lack of market information / market price information before 2006 or 2005. So the X company has a choice to restate the earliest period presented by excluding the gain / loss due to remeasurement of available for sale financial assets from the net profit or loss of the earliest period presented in this case it will be 2006 or 2005 as appropriate.

Answer to Question number 3

I think the above example quoted is self explanatory for this question also as it describes that it is possible to compute the aggregate effect but not possible to compute whether there was a remeasurement gain / loss in 2002, 2003 or 2004 etc.

I hope the above responses would clarify the matters. However, should you have any further query, please do not hesitate to send it to FinProS.

Best Regards

Shafiq AhmedACA

[insaan]

plz confirm this;

there is a difference in prospective application of a change in accounting estimate and a change in acounting policy

Prospective application of a change in acountingpolicy means;(para 8.5) applying the new accounting policy to transactions,other events and conditions occurring after the dateas at which the policy is changed; and

propective application of a change in accounting estimate mean Recognizing the effect of the change in the accounting estimate in the current and future periods affected by the change.

for example,lets consider date is 30 dec 2005 , onthis datethere is a change in acounting policy,we wud applythis change prospectively from 1 jan 2006 & ifthere is a change in accounting estimate,we wud applythis change prospectively from 1 jan 2005

M I rite?and iF i am rite it means this is the basisof prospective application of change in accounting policy from cost model to revalaution inIAS 16 and IAS 38?1nce again M I Rite?DO confirm plz

thx

[rememberence]

<blockquote id="quote"><font size="1" face="Verdana, Tahoma, Arial" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by insaan</i>
<br />plz confirm this;

there is a difference in prospective application of a change in accounting estimate and a change in acounting policy

Prospective application of a change in acountingpolicy means;(para 8.5) applying the new accounting policy to transactions,other events and conditions occurring after the dateas at which the policy is changed; and

propective application of a change in accounting estimate mean Recognizing the effect of the change in the accounting estimate in the current and future periods affected by the change.

for example,lets consider date is 30 dec 2005 , onthis datethere is a change in acounting policy,we wud applythis change prospectively from 1 jan 2006 & ifthere is a change in accounting estimate,we wud applythis change prospectively from 1 jan 2005

M I rite?and iF i am rite it means this is the basisof prospective application of change in accounting policy from cost model to revalaution inIAS 16 and IAS 38?1nce again M I Rite?DO confirm plz

thx
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

yeah you are very much right, infact it was a very critical observation.

In case of IAS 16 and 38, IAS 8 doesnt consider it as a change in accounting policy for its own requirements, because back dates fair values are hard to assess. However change in accounting estimate relating to IAS 16 & 38 shall be accounted for in the same way as stated by you.