Just the man I want teaching me about IAS 8! I've never seen practical examples of restated financials due to prior period accounting errors - hopefully this video gives me some insight!
Change in method of depreciation is also a measurement aspect , then why is it estimate and not policy, is it because it’s not directly measuring the asset like fifo lifo measure inventories directly? M really confused
Great question! I also thought about it and did some research but I think that I have the answer now. The difference seems to lie in the level of detail in the Accounting Standards specifications: IAS 16 states that the asset should be depreciated over its useful life (accounting policy) - it is up to the business to select and apply the suitable depreciation method (accounting estimate). Hence, a change in depreciation method is to be applied prospectively. IAS 2 applies in case of Inventories - Here, the choice of LIFO/FIFO/average cost methods for inventory valuation is governed by the Standard based on the inventory type. For example, IAS 2 was revised in 2003, as a result of which LIFO was no longer permitted. Hence, the affected organisations had to adapt their accounting policy to the change in IAS 2 and choose from the remaining compliant valuation methods. Since this was a change in accounting policy (resulting from change in the Standard), it had to be applied retrospectively.
Just the man I want teaching me about IAS 8!
I've never seen practical examples of restated financials due to prior period accounting errors - hopefully this video gives me some insight!
This is a great teacher and this was a great lecture
Change in method of depreciation is also a measurement aspect , then why is it estimate and not policy, is it because it’s not directly measuring the asset like fifo lifo measure inventories directly? M really confused
Great question! I also thought about it and did some research but I think that I have the answer now. The difference seems to lie in the level of detail in the Accounting Standards specifications:
IAS 16 states that the asset should be depreciated over its useful life (accounting policy) - it is up to the business to select and apply the suitable depreciation method (accounting estimate). Hence, a change in depreciation method is to be applied prospectively.
IAS 2 applies in case of Inventories - Here, the choice of LIFO/FIFO/average cost methods for inventory valuation is governed by the Standard based on the inventory type. For example, IAS 2 was revised in 2003, as a result of which LIFO was no longer permitted. Hence, the affected organisations had to adapt their accounting policy to the change in IAS 2 and choose from the remaining compliant valuation methods. Since this was a change in accounting policy (resulting from change in the Standard), it had to be applied retrospectively.
Thought so too.