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Intermediate Accounting 3 Reviewer - Notes - Part 1

IA3 Reviewer 1

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dwenbeagarcia
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186 views

Intermediate Accounting 3 Reviewer - Notes - Part 1

IA3 Reviewer 1

Uploaded by

dwenbeagarcia
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Intermediate Accounting 3: Chapter 7 Notes – Part 1

Related Standards

 PAS 1 - Presentation of Financial Statements

 PAS 8 - Accounting Policies, Changes in Estimates, and Errors

 PAS 10 - Events after the Reporting Period

Learning Objectives

1. Understand the relationship of notes to other components in financial statements.

2. Define and give examples of:

o Change in Accounting Policy

o Change in Accounting Estimate

o Error

3. Differentiate between:

o Change in Accounting Policy

o Change in Accounting Estimate

o Correction of Prior Period Errors

4. Define Events After the Reporting Period and understand their accounting requirements.

Order of Presentation in Notes

1. Statement of Compliance with PFRSs

2. Summary of Significant Accounting Policies

3. Supporting Information for items in financial statements

4. Other Disclosures

Overview of PAS 8

 PAS 8 outlines criteria for selecting and applying accounting policies and handling:

o Changes in accounting policies

o Changes in accounting estimates

o Corrections of prior period errors


Key Definitions and Concepts

Accounting Policies

 These include specific principles, conventions, and practices adopted by an entity for financial
reporting.

 Policies are based on Philippine Financial Reporting Standards (PFRSs), including:

1. PFRSs

2. Philippine Accounting Standards (PASs)

3. Interpretations

Changes in Accounting Policy

 A policy change is made only if:

1. Required by a PFRS, or

2. Results in more relevant and reliable information.

 Examples:

o Shifting inventory costing from FIFO to average cost.

o Changing revenue recognition for long-term contracts.

o Moving from cost model to fair value model for investment property.

Changes in Accounting Estimate

 A change in estimate is an adjustment based on new information or changes in conditions.

 Examples:

o Changes in depreciation or amortization methods.

o Revision of useful lives or residual values of assets.

o Adjusting allowances for doubtful accounts.

Errors

 Errors are inaccuracies due to:

o Mathematical mistakes

o Misapplication of policies

o Misinterpretation or fraud

 Types:
1. Counterbalancing Errors: These self-correct in the next period.

2. Non-Counterbalancing Errors: Do not self-correct and require direct adjustments.

Events After the Reporting Period (PAS 10)

Definition

 Events occurring between the end of the reporting period and the authorization date of
financial statements, which may be:

o Adjusting Events - Reflect conditions existing at the reporting date.

o Non-Adjusting Events - Reflect conditions that emerged after the reporting date.

Examples of Adjusting Events

1. Settlement of lawsuits confirming liabilities at the reporting date.

2. Discovery of impaired assets due to a post-reporting event (e.g., customer bankruptcy).

3. Post-period asset sales providing insights into realizable values.

Examples of Non-Adjusting Events (Usually Disclosed)

1. Major share transactions or changes in fair values after reporting.

2. Casualty losses (e.g., natural disasters) occurring post-reporting.

3. Announcements about discontinuing operations.

4. Declaring dividends after the reporting period.

Disclosures Required

1. Date of Authorization for issuing financial statements.

2. Adjusting Events impacting financial positions.

3. Material Non-Adjusting Events that require disclosure.

Application of Concepts

 Problem-solving exercises facilitate applying theoretical knowledge to practical cases,


reinforcing the distinction between adjusting and non-adjusting events and understanding
policy changes.

Key Takeaways
1. Importance of Notes: Supplement financial statements, providing context and clarity on
accounting choices and adjustments.

2. Differentiation Between Changes and Errors: Understanding the nature of adjustments


improves accuracy and compliance with standards.

3. Events Post-Reporting: Critical for ensuring that stakeholders are informed about subsequent
developments affecting the entity’s financial position.

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