Question Tag: Accounting Policies

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  • 15 Marks

CR – Nov 2014 – L3 – SC – Q7 – Accounting Policies, Changes in Accounting Estimates and Errors (IAS 8)

Discuss IAS 8 provisions for accounting policy changes and implications of prior period errors.

International Accounting Standard 8 (IAS 8) Accounting Policies, Changes in Accounting Estimates and Errors prescribes the criteria for selecting and changing accounting policies, accounting for changes in estimates, and reflecting corrections of prior period errors. Changes in accounting policies and corrections of errors are generally accounted for retrospectively unless this is impracticable; whereas changes in accounting estimates are generally accounted for prospectively.

Required:

(a) Advise the CFO on the circumstances where an entity may change its accounting policies, setting out how a change in accounting policy is applied and the difficulties faced by entities when a change in accounting policy is made. (8 Marks)

(b) Discuss why the current treatment of prior period errors could lead to earnings management by companies, together with any further arguments against the current treatment. (7 Marks)

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  • 6 Marks

CR – Nov 2014 – L3 – SB – Q2c – Revenue Recognition (IFRS 15)

Assess revenue recognition change for NIXAQ sales under IFRS 15 and calculate total revenue for the year.

Maidogo Limited sells NIXAQ, a product manufactured by it, from several retail outlets. In previous years, the company has undertaken responsibility for fitting the product in customers’ premises. Customers pay for the product at the time they are ordered. The average length of time it takes from ordering to its fitting is 14 days. In previous years, Maidogo Limited had not recognised a sale in its books until the product had been successfully fitted because the rectification costs of any fitting error would be expensive.
With effect from 1 April, 2013, Maidogo Limited changed its method of trading by sub-contracting the fitting to approved contractors. Under this policy, the sub-contractors are paid by Maidogo Limited, and they (the sub-contractors) are liable for any errors made in the fitting. Consequently, Maidogo Limited is proposing to recognise sales when customers order and pay for the goods rather than when they have been fitted. Details of the relevant sales figures are:

Sales Figures Amount (N’000)
Sales made in retail outlets for the year to 31 March 2014 69,000
Sales value of NIXAQ fitted in the 14 days to 14 April 2013 3,600
Sales value of NIXAQ fitted in the 14 days to 14 April 2014 4,800

Note: The sales value of NIXAQ in the 14 days to 14 April 2013 are not included in the annual sales figure of N69million, but those for 14 April 2014 are included.

Required:
Discuss whether or not the above represents a change of accounting policy, and calculate the amount that you would include in the revenue for NIXAQ in the year to 31 March 2014. (6 Marks)

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  • 7 Marks

CR – Nov 2014 – L3 – SB – Q2a – Revenue Recognition (IFRS 15)

Discuss revenue recognition principles for different scenarios and calculate the revenue for NIXAQ sales.

(a) Labalaba Plc operations involve selling cars to the public through a chain of retail car showrooms. It buys most of its new vehicles directly from the manufacturer on the following terms:

  • Pay the manufacturer for the cars on the date they are sold to customers or six months after they are delivered to its showroom, whichever is earlier.
  • The price paid will be 80% of the retail price as set by the manufacturer at the date that the goods are delivered.
  • Pay the manufacturer 1.5% per month (of the cost to Labalaba) as a “display charge” until the goods are paid for.
  • May return the cars to the manufacturer at any time up to the date the cars are due to be paid for and incur the freight cost of any such returns. Labalaba Plc has never taken advantage of this right of return.
  • The manufacturer can recall the cars or request them to be transferred to another dealer at any time up to the time they are paid for by Labalaba.

Required:
Advise the management of Labalaba Plc as to which party bears the risks and rewards in the above arrangement and show whether there is a sale and how the transactions should be treated by each party. (7 Marks)

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  • 1 Marks

AAA – Nov 2013 – L3 – AII – Q14 – Advanced Audit Planning and Strategy

Describe a series of questions used by auditors to evaluate accounting and control policies.

A series of questions about accounting and control policies and procedures that the auditor considers necessary to prevent material misstatements in the presentation of financial statements is………………………

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  • 15 Marks

CR – Nov 2021 – L3 – Q6 – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)

Evaluate IFRS solutions to accounting challenges, commercial pressures, and accounting techniques under such pressures.

Directors of companies are expected to issue financial statements that present fairly the financial position, financial performance, and cashflows of their entities. Hence, financial statements are supposed to be a faithful representation of the effects of transactions and other events in accordance with the definition and recognition criteria for assets, liabilities, income, and expenses set out in IFRS. However, a fair presentation can encompass a range of different figures because alternative accounting policies can produce different results. Also, the application of accounting policies in accordance with IAS 8 is often based on estimates and judgments. Valuations and estimations are key factors in drafting financial information. Regulatory frameworks, both local and global, asserted conscious efforts to address some of these problems. However, the strength of a regulatory framework may be undermined by commercial pressures on those responsible for preparing financial statements.

Required:

a. Evaluate the ways in which IFRS has tried to alleviate the problems illustrated above.
(5 Marks)

b. Discuss FIVE likely commercial pressures on preparers of financial statements.
(5 Marks)

c. Examine TWO techniques employed by accountants to produce desired accounting results when faced with such pressures.

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  • 6 Marks

FR – May 2016 – L2 – Q5a – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)

Explain the basis of selecting accounting policies and distinguish between changes in accounting policies and estimates with examples.

As one of the accountants of Oluwaseun Plc, a company that has migrated to IFRS, you are aware that IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” contains guidance on the use of accounting policies and accounting estimates.

Required:

Explain the basis on which the management of an entity, such as Oluwaseun Plc, must select its accounting policies, and distinguish, with an example, between changes in accounting policies and changes in accounting estimates.

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  • 20 Marks

FR – May 2022 – L2 – SB – Q2 – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)

Explain accounting policies and estimates, and distinguish between changes in accounting policies and accounting estimates.

The aim of IAS 8 – Accounting Policies, Changes in Accounting Estimates, and Errors is to enhance the comparability of an entity’s financial statements with previous periods and with the financial statements of other entities.

Required:
Explain the terms, “accounting policies” and “accounting estimates.” (3 Marks)

b. In an in-house training for newly recruited trainee accountants in your organization, a disagreement arose on the distinction between change in accounting policies and change in accounting estimates. Consequent upon the above, the finance director requested you as the head of the accounting department to make a presentation on the subject matter.

Required:
Write a memo addressed to the finance director distinguishing changes in accounting policies and changes in accounting estimates, highlighting also the accounting treatment of the changes in accounting estimates. (8 Marks)

c. An extract from the non-current assets register of Eze Nigeria Limited at July 1, 2019, shows the following details:

Additional information includes details of impairment, revaluation, depreciation, and amortization.

Required:
Prepare, with comparative figures, statement of financial position extracts of Eze Nigeria Limited as at June 30, 2020. Show relevant notes for PPE and intangible assets. (9 Marks)

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  • 12 Marks

FR – Nov 2019 – L2 – Q1c – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)

Explain the factors required for selecting and applying accounting policies per IAS 8, and identify alternative policies for inventory and depreciation.

c. State the main factors that IAS 8 requires management of a company to consider in selecting and applying accounting policies in the absence of any IFRS and identify the alternative accounting policies on the following items in the financial statements:

i. Inventories
ii. Depreciation

(12 Marks)

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  • 10 Marks

PSAF – Nov 2021 – L2 – Q2b – International Public Sector Accounting Standards (IPSAS)

Outline changes in accounting policies and identify disclosure requirements when applying IPSAS 3.

IPSAS 3 – Accounting Policies, Changes in Accounting Estimates, and Errors outlines criteria for selecting and changing accounting policies among other purposes.

Required:

  1. Outline what constitutes changes in accounting policies under the standard.
  2. Identify THREE disclosure requirements under the following headings:
    • When the initial application of IPSAS 3 is made and has effects on prior, current, or future periods.
    • When voluntary changes in accounting policy are made and have effects on current, prior, or future periods.

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  • 5 Marks

FR – MAY 2021 – L2 – Q4b – Areas Requiring Further Investigation

Identify five areas needing further investigation regarding Zeus Ltd's performance.

Summarising FIVE (5) areas that require further investigation, including reference to other pieces of information which would complement your analysis of the performance of Zeus Ltd.

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  • 20 Marks

PSAF – Mar/July 2020 – L2 – Q2 – IPSAS 3 Changes and Expenditure Assignment Challenges

Explanation of changes in accounting policies and challenges in expenditure assignment according to IPSAS 3.

IPSAS 3 – Accounting policies, changes in accounting estimates and errors, outlines criteria for selecting and changing accounting policies among other purposes.

a. Explain what constitutes changes in accounting policies under the standard.
(4 Marks)

b. Outline THREE disclosure requirements in the standard:

(i) When initial application of IPSAS 3 is made and has effects on current, prior, or future period.
(ii) When voluntary changes in accounting policy are made and have effects on current, prior, or future period.
(6 Marks)

c. Expenditure assignment refers to division or sharing of expenditure, regulatory, and tax functions or responsibilities among multi-levels of governments in a federation. Identify and explain FIVE challenges prevalent on expenditure assignment.
(10 Marks)

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  • 8 Marks

FR – Mar/Jul 2020 – L2 – Q4a – Accounting for Government Grants (IAS 20)

Explain types and methods of government grants under IAS 20 and prepare extracts of financial statements for Gbogbonise Enterprises.

a. The Federal Government of Nigeria is committed to improving Medium, Small and Micro Enterprises (MSME) programme. In view of this, the government issued directives to the Central Bank of Nigeria (CBN) to give grants to MSME that has at least 25% local equity participation.

Required:
(i) Explain the TWO types of grant/government assistance that are recognised by IAS 20 on accounting for government grants and disclosure of government assistance.
(ii) Outline the TWO methods of presenting grant/government assistance that are recognised by IAS 20 – Accounting for Government Grants and Disclosure of Government Assistance. (8 Marks)

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  • 1 Marks

FA – May 2021 – L1 – SA – Q15 – Regulatory Environment of Accounting

Identify changes that are considered accounting estimates under IAS 8.

In accordance with IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors, which of the following is considered a change in accounting estimates?

i. Changing the useful life of an asset
ii. Changing from cost model to revaluation model
iii. Change in the allowances for doubtful receivables
iv. Change from FIFO to weighted average for valuation of inventory

A. I and II
B. I and III
C. II and III
D. II and IV
E. III and IV

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  • 8 Marks

FA – Nov 2023 – L1 – SB – Q5B -Regulatory Environment of Accounting

Explain the distinction between accounting policies and accounting estimates as per IAS 8.

Explain the distinction between accounting policies and accounting estimates in accordance with IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors.

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  • 8 Marks

FA – May 2023 – L1 – SB – Q3b – Regulatory Environment of Accounting, IAS 8

Defining accounting policies and changes in accounting estimates with examples, and outlining the required accounting treatment.

IAS 8 deals with the measurement, recognition, and disclosure of accounting policies, changes in accounting estimates, and correction of prior period errors.

i. Define an accounting policy and change in accounting estimates, with TWO examples each. (6 Marks)

ii. Outline the accounting treatments required to record a change in accounting estimates. (2 Marks)

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  • 1 Marks

FA – Nov 2019 – L1 – SA – Q4 – Accounting Concepts

Identify which change does not affect accounting policy under IAS-8.

In accordance with the requirements of IAS-8 – Accounting Policies, Estimates, and Errors, which of the following changes in method does not give rise to changes in accounting policy?

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  • 5 Marks

FR – March 2023 – L2 – Q5b – Conceptual Framework for Financial Reporting

Explain how consistency in accounting policies enhances comparability in financial reporting.

Comparability is one of the enhancing qualitative characteristics of useful financial information. Comparability improves the usefulness of financial statements and it is achieved by consistency.

Required:

Explain the role of consistency in relation to changes in accounting policy and the need for comparability.

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  • 4 Marks

FR – Nov 2021 – L2 – Q2d – Financial Reporting Standards and Their Applications

This question covers the procedures for selecting and applying accounting policies in accordance with IAS 8.

IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors is applied in selecting and applying accounting policies, accounting for changes in estimates, and reflecting corrections of prior period errors.

Required:
Describe the procedures an entity shall apply in selecting an accounting policy.

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  • 5 Marks

FR – March 2024 – L2 – Q5c – Financial Reporting Standards and Their Applications

Identify the qualities required in information when management uses judgment in developing accounting policies under IAS 8.

According to IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors, when an IFRS specifically applies to a transaction, other event, or condition, the accounting policy applied to that item shall be determined by applying the IFRS. In the absence of an IFRS that specifically applies to a transaction, other event, or condition, management shall use its judgment in developing and applying an accounting policy that results in information that has certain qualities.

Required:
Identify the qualities that must be present in the resultant information when management of an entity uses its judgment in developing and applying an accounting policy.
(5 marks)

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  • 2 Marks

FR – Nov 2016 – L2 – Q2b – Financial Reporting Standards and Their Applications

Identify the conditions under which it may be appropriate to change accounting policy in accordance with IAS 8.

According to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, an entity must select and apply its accounting policies consistently from one period to the next and among various items in the financial statements. However, an entity may change its accounting policies under certain conditions.

Required:
Identify the circumstances under which it may be appropriate to change accounting policy in accordance with the guidance given in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

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