DMB Finance & Advisory © 2013 - 2014

About | Legal and Privacy

Overview

IPSAS 3 is based on IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Revised 2003).


IPSAS 3 is applied in (i) selecting and applying accounting policies, (ii) accounting for changes in estimates and reflecting (iii) corrections of prior period errors.

The standard requires compliance with any IPSAS specifically applying to a transaction, event or condition, and provides guidance on developing accounting policies for other items that result in relevant and reliable information.


Generally application of changes should is as follows:









History of IPSAS 3












Effective date

Annual periods beginning on or after 1 January 2008.


Full text

Refer to IFAC website here


Summary of IPSAS 3 Accounting Policies, Changes in Accounting Estimates and Errors

Objective

The objective of IPSAS 3 is to prescribe the criteria for selecting and changing the accounting policies. The standard also prescribes the treatment of changes in accounting policies, the correction of errors and the change in accounting estimates. The standard has the intention to enhance the relevance and the reliability of the financial statements.


Scope

This standard should be applied by entities in selecting and applying accounting policies, in the applying changes to accounting policies, the change in accounting estimates and the correction of errors. IPSAS 3 applies to all public sector entities other than GBEs [IPSAS 3.5-3].


Key definitions in IPSAS 3

Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements [IPSAS 3.7].


A change in accounting estimate is an adjustment of the carrying amount of an asset or a liability, or the amount of the periodic consumption of an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with that asset or liability [IPSAS 3.7].


Prior period errors are omissions from, and misstatements in, an entity's financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that was available and could reasonably be expected to have been obtained and taken into account in preparing those statements. Such errors result from mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud [IPSAS 3.7].


Materiality is defined as “Assessing whether an omission or misstatement could influence decisions of users, and so be material, requires consideration of the characteristics of those users. Users are assumed to have a reasonable knowledge of the public sector and economic activities and accounting and a willingness to study the information with reasonable diligence. Therefore, the assessment needs to take into account how users with such attributes could reasonably be expected to be influenced in making and evaluating decisions” [IPSAS 3.8].


Retrospective application is applying a new accounting policy to transactions, other events, and conditions as if that policy had always been applied [IPSAS 3.7].


Selecting and Applying Accounting Policies

When a Standard specifically applies to a transaction, other event or condition, the accounting policy or policies applied to that item must be determined by applying the Standard [IPSAS 3.9] taking into consideration relevant Implementation Guidance [IPSAS 3.11].


In the absence of a Standard that specifically applies to a transaction, other event or condition, management is required to use its judgment in developing and applying an accounting policy that results in information that is relevant and reliable [IPSAS 3.12].


In making that judgment, management must refer to, and consider the applicability of, the following sources in descending order:

• the requirements and guidance in other IPSASs dealing with similar and related issues [IPSAS 3.14]

• the definitions, recognition criteria and measurement criteria for assets, liabilities, revenue and expenses in other IPSAS standards [IPSAS 3.14]

• most recent (a) pronouncements of other standard-setting bodies and (b) accepted public or private sector practices, to the extent that these do not conflict with the sources indicated in IPSAS 3.14 [IPSAS 3.15].


Examples of such pronouncements include [IPSAS 3.16]:

• Pronouncements of the IASB

• IFRSs

• IFRIC and SIC interpretations


Consistency of accounting policies

An entity shall select and apply its accounting policies consistently for similar transactions, other events and conditions, unless a Standard or specifically requires or permits categorisation of items for which different policies may be appropriate. If a Standard requires or permits such categorisation, an appropriate accounting policy shall be selected and applied consistently to each category [IPSAS 3.16].


Changes in accounting policies

An entity must apply a change in an accounting policy only if the change:

• is required by a standard; or

• results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity's financial position, financial performance, or cash flows [IPSAS 3.17]


Applying an accounting policy to a transaction or event that did not occur previously or was immaterial. Is not considered as a change in an accounting policy [IPSAS 3.21].


If a change in accounting policy is required by an IPSAS standard (or by the initial application of a standard), the change is accounted for as required by the specific transition provisions in that standard, if the no specific transition provisions are included, then the change in accounting policy is applied retrospectively [IPSAS 3.24]


When the change is applied retrospectively, the opening balance of each affected component of equity for the earliest prior period presented and the other comparative amounts disclosed for each prior period presented, are adjusted, as if the new accounting policy had always been applied. [IPSAS 3.7 and IPSAS 3.27]

• In case it is impracticable to determine either the period-specific effects of the change for one or more prior periods presented, the entity shall apply the new accounting policy to the carrying amounts of assets and liabilities as at the beginning of the earliest period for which retrospective application is practicable, which may be the current period, and shall make a corresponding adjustment to the opening balance of each affected component of net assets/ equity for that period [IPSAS 3.29].

• In case it is impracticable to determine the cumulative effect, at the beginning of the current period, of applying a new accounting policy to all prior periods, the entity shall adjust the comparative information to apply the new accounting policy prospectively from the earliest date practicable [IPSAS 3.30].


Disclosures - changes in accounting policies

Disclosures relating to changes in accounting policy from the initial application of a standard [IPSAS 3.33]

• the title of the standard that caused the change

• nature of the change in policy

• a description of the transitional provisions and there possible effect on future periods

• for the current period and each prior period presented, the amount of the adjustment to each line item affected

• amount of the adjustment relating to prior periods not presented

• if retrospective application is impracticable, explain and describe how the change in policy was applied

• these disclosures should not be repeated in subsequent periods.


Disclosures relating to voluntary changes in accounting policy include [IPSAS 3.34]:

• nature of the change in policy

• the reasons why applying the new accounting policy provides reliable and more relevant information

• for the current period and each prior period presented, the amount of the adjustment to each line item affected

• amount of the adjustment relating to prior periods not presented

• if retrospective application is impracticable, explain and describe how the change in policy was applied

• these disclosures should not be repeated in subsequent periods


If an entity has not applied a new standard that has been issued but is not yet effective, the entity must disclose this fact and any known or reasonably estimable information relevant to assessing the possible impact that the new IPSAS will have in the year of initial application [IPSAS 3.35].


Changes in accounting estimates

Recognise the change prospectively in surplus or deficit in [IPSAS 3.41]:

• Period of change, if it only affects that period; or

• Period of change and future periods


However, to the extent that a change in an accounting estimate gives rise to changes in assets and liabilities, or relates to an item of net assets/equity, it is recognised by adjusting the carrying amount of the related asset, liability, or net/assets/equity item in the period of the change. [IPSAS 3.42]


Disclosures relating - changes in accounting estimates

Disclosures relating to changes in accounting policy :

• Nature and amount of change that has an effect in the current period (or expected to have in future) [IPSAS 3.44]

• Fact that the effect of future periods is not disclosed because of impracticality [IPSAS 3.45]

• Subsequent periods need not repeat these disclosures


Errors

Generally an entity is required to correct all material prior period errors retrospectively in the first set of financial statements authorized for issue after their discovery by [IPSAS 3.47]:

• restating the comparative amounts for the prior period(s) presented in which the error occurred; or

• if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and net assets/equity for the earliest prior period presented


If it is impracticable to determine the period-specific effects of an error on comparative information for one or more prior periods presented, the entity must restate the opening balances of assets, liabilities, and net assets/equity for the earliest period for which retrospective restatement is practicable (which may be the current period) [IPSAS 3.49].

Furthermore, if it is impracticable to determine the cumulative effect, at the beginning of the current period, of an error on all prior periods, the entity is required to restate the comparative information to correct the error prospectively from the earliest date practicable [IPSAS 3.50].


Disclosures – prior period errors

Disclosures related to prior period errors concern [IPSAS 3.54]


• nature of the prior period error

• for each prior period presented, if practicable, disclose the correction to each line item affected

• amount of the correction at the beginning of earliest period presented

• if retrospective application is impracticable, explain and describe how the error was corrected

• subsequent periods need not to repeat these disclosures


May 2000

Issuance of IPSAS 3: Accounting policies, Changes in Accounting Estimates and Errors

zaterdag30december1899

revision of IPSAS 3

1 January 2008

Effective date of IPSAS 3

1 January 2011

Effective date of improvements to IPSASs (issued January 2010)

Changes in accounting policies

retrospectively

Changes in accounting estimates

prospectively

Corrections of errors

retrospectively

IPSAS 3: Accounting Policies, Changes in Accounting Estimates  and Errors

Related documents:


IPSAS 3 Brief Summary