The Standard updates the previous hierarchy of guidance to which management refers and whose applicability it considers when selecting accounting policies in the absence of Standards and Interpretations that specifically apply.

(a) the accounting policies in Financial Reporting Standards (FRSs) need not be applied when the effect of applying them is immaterial. This complements the statement in FRS 101 that disclosures required by FRSs need not be made if the information is immaterial.

(b) financial statements do not comply with FRSs if they contain material errors.

(c) material prior period errors are to be corrected retrospectively in the first set of financial statements authorised for issue after their discovery.

It removes the allowed alternative in FRS 1082004:

(a) to include in profit or loss for the current period the adjustment resulting from changing an accounting policy or the amount of a correction of a prior period error; and

(b) to present unchanged comparative information from financial statements of prior periods.

Includes a definition of ‘impracticable’ and guidance on its interpretation.

Also states that when it is impracticable to determine the cumulative effect, at the beginning of the current period, of:

(a) applying a new accounting policy to all prior periods, or

(b) an error on all prior periods,

The entity changes the comparative information as if the new accounting policy had been applied, or the error had been corrected, prospectively from the earliest date practicable.

In addition, it requires disclosure of known or reasonably estimable information relevant to assessing the possible impact that application of the new Standard or Interpretation will have on the entity’s financial statements in the period of initial application.

Requires more detailed disclosure of the amounts of adjustments resulting from changing accounting policies or correcting prior period errors.
Requires those disclosures to be made for each financial statement line item affected and, if FRS 133 Earnings per Share applies to the entity, for basic and diluted earnings per share.

Incorporates the consensus in IASB SIC-18 Consistency - Alternative Methods, namely that:

(a) an entity selects and applies its accounting policies consistently for similar transactions, other events and conditions, unless a Standard or an Interpretation specifically requires or permits categorisation of items for which different policies may be appropriate; and

(b) if a Standard or an Interpretation requires or permits such categorisation, an appropriate accounting policy is selected and applied consistently to each category.

As a result of the removal of the allowed alternative, comparative information for prior periods is presented as if new accounting policies had always been applied and prior period errors had never occurred.

The consensus in IASB SIC-18 incorporated the consensus in IASB SIC-2 Consistency - Capitalisation of Borrowing Costs, and requires that when an entity has chosen a policy of capitalising borrowing costs, it should apply this policy to all qualifying assets.

Includes a definition of a change in accounting estimate.

Includes exceptions from including the effects of changes in accounting estimates prospectively in profit or loss. It states that to the extent that a change in an accounting estimate gives rise to changes in assets or liabilities, or relates to an item of equity, it is recognised by adjusting the carrying amount of the related asset, liability or equity item in the period of the change.