APFASL
Association of Public Finance
Accountants of Sri Lanka
(Public Sector wing CA Sri Lanka)
Seminar on Sri Lanka
Public Sector Accounting
Standards (SLPSAS)
Conducted By :
Association of Public Finance
Accountants of Sri Lanka
(Public Sector wing CA Sri Lanka)
Accounting Policies,
Changes in Accounting
Estimates and Errors
(SLPSAS 03)
P. Ariyasena (B.Com (Sp),ACA,DPFM)
Chief Accountant
Ministry of Foreign Employment Promotion and Welfare
Coverage
 Introduction

 Comparison of SLPSAS-3 & LKAS-8

 Objectives

 The scope

 Important definitions

 Selection of accounting policies

Consistency
Accounting estimates
Prior period errors
Disclosures
Examples
Summary
Introduction
Accounting Policies
Specific Principles, bases, conventions, rules
or practices in preparing and presenting
financial statements
A Changes in Accounting Estimates
Changes in accounting estimate an adjustment of
carrying amount of an asset or a liability ,or the
amount of periodic consumption of an asset, that
results from the assessment of the present status
of, and expected future benefits and obligations
associated with assets and liabilities.
Changes in accounting estimates result from new
information or new developments. These changes
are not correction of errors
Prior Period Errors
Prior period errors are omissions from, and misstatements in,
the entity’s financial statements for one or more prior periods
arising from a failure to use, or misuse of, reliable
information that:
(a)
Was available when financial statements for those
periods were authorized for issue; and
(b)
Could reasonably be expected to have been
obtained and taken into account in the
preparation and presentation of those financial
statements.
objective
To describe the criteria for selecting and changing
accounting policies, accounting treatments and
disclosure of changes in accounting policies,
changes in accounting estimates the correction of
errors .The Standard is intended to enhance the
relevance and reliability of an entity’s financial
statements and comparability of those financial
statements over time and with the financial
statements of other entities
Scope
Applies in selecting and applying accounting policies,
changes in accounting policies, accounting estimates
and correction of prior period errors
Applies in all public sector entities other than
Government Business Enterprises (GBEs)
The tax effect of correction of prior period errors and
of retrospective adjustment made to apply changes
in accounting policies are not considered
Key Definitions
Prospective application
It is a change in accounting policy and of recognizing the
effect of a change in accounting estimates ;
(a) Applying new accounting policy to transactions, other
events and conditions occurring after the date as at
which ,the policy is changed and
(b) Recognizing the effect of the change in accounting
estimate in the current and future periods affected by
change.
Key Definitions: Cont.
Retrospective application
Appling a new accounting policy to transactions, other
events, and conditions as if that policy had always been
applied.
Key Definitions: Cont.
Retrospective Restatements
Correcting the recognition, measurement and
disclosure of amount of elements of financial
statements as if prior period errors had never been
occurred
Key Definitions :Cont.
Impracticable
Applying a requirement is impracticable when the
entity cannot apply it after making every reasonable
effort to do so, for a particular prior period, it is
impracticable to apply a change in an accounting
policy retrospectively or to make a retrospective
restatement to correct an error
Selection and application of
accounting policies
When a SLPSAS specifically apply to a transaction,
event or condition, the accounting policy of that item
shall be determined by applying relevant standard (1 to
10 SLAPSAS)
Those policies need not be applied when the effect of
applying them is immaterial .
Cont.
In the absence of a SLPSAS that specifically applies
to a transaction, other event or condition,
management shall use its judgment in developing
and applying an accounting policy considering the
following.
1. Relevance to the decision making need of users
2. Reliable in that the financial statements
3. Represent faithfully the financial position,
financial performance and cash flows
Cont.
4.Refelect the economic substance of transactions,
other events and conditions and not merely the
legal form, Example : Finance Lease
5.Neutral i.e. free from bias
6.Prudent: Assets & Revenue not overstated,
Liabilities & Expenses not under stated
7.Complete in all material respect
In developing the accounting policies to ensure the
FS provide information that meet qualitative
characteristics.
Cont.
In Making the judgment, the management shall
consider the applicability of the following sources
(a) Requirement & guidance in SLPSAS in dealing
with similar issues
(b) The definitions, recognitions and measurement
criteria for assets, liabilities, revenue and
expenses describe in other SLPSAS
(c) The management may consider most recent
pronouncement of other standard setting bodies
and accepted private & public sector practices.
Consistency of accounting policies
The entity shall apply its accounting policies consistently
for similar transaction, other events and conditions,
unless, a SLPSAS specially requires or permits for
different policy, may be appropriated.
If a standard requires or permits such categorization, an
appropriate accounting policy shall be selected and
applied consistently to each category
Changes in accounting policies
An entity can change an accounting policy only if;
(a) It is required by a SLPSAS
or
(b) Results in FS providing reliable and more relevant
information
on the entities financial position,
financial performance and cash flows
Users of FS need to be able to compare the FS of an
entity over time to identify trends in financial
position , financial performance and cash flows
Cont.
A change from one basis of accounting to another
basis of accounting is a changing accounting policy
A change in accounting treatment, recognition or
measurement of a transaction, event or condition
with in a basis of accounting is regarded as a
change in accounting policy
Instances not treated as
Changes in accounting policies
The application of an accounting policy for
transaction, event or condition that differ in
substance from those previously occurring
The application of a new accounting policy that did
not occur previously or that was immaterial
The initial application of a policy to revalue assets in
accordance with SLPSAS 7,PPE or when adopted
equivalent SLPSA
Applying changes in
accounting policies
Shall account for a change in accounting policy
resulting from initial application of a SLPSAS in
accordance with specific transitional provisions if
any in that standard
When entity changes an accounting policy upon
initial application of a SLPSAS that does not include
specific transitional provisions applying to that
change, or changes an accounting policy voluntarily,
It shall apply the change retrospectively
Retrospective application
When change in accounting policy is applied
retrospectively, the entity shall adjust the opening
balance of each affected component of net
asset/equity for the earliest period presented and
the other comparatives amount disclosed for each
period presented as if the new accounting policy
had always been applied
Limitations on Retrospective
Application.
A changing accounting policy shall be applied
retrospectively except to the extent that it is
impracticable to determine either the period
specific effects of the cumulative effect of the event
Cont.
If it is impracticable to determine the cumulative
effect, at the begging of the current period, of
applying new accounting policy to all prior periods,
comparative information should be adjusted
applying the new accounting policy
Comparison
Prospective application
Retrospective application
 Applying new AP
 Assumed new AP had always
 Adjust the effect of change in AP
been applied
 Correcting prior period errors
 Adjust the Opening balance of
each affected component of net
assets/equity & other
component
 No transitional provisions
available
in current & future period
 Errors happened during the year
correction is done in that year
 Transitional provision available
Disclosure: Initial Application
For initial application of SLPSAS
Should be disclosed
1. Title of the standard
2. Change in accounting policy under transitional
provision
3. The nature of changing accounting policy
4. A description of transitional provision
5. The effect of prior period presented etc
Above disclosure need not be repeated
subsequently
Disclosure
Voluntary change in accounting policy
1. The nature of the accounting policy changed
2. The reason for applying new accounting policy
3. The amount of adjustment for line items in FS etc
Above disclosure need not disclose subsequently in FS
When an entity has not applied a new SLPSAS , that
has been issued but not yet effective also should
disclose
Changes in Accounting Estimates
Estimation involves judgments based on latest
available, reliable information
Examples:
Tax dues, bad debts, Provision for inventory
obsolescence, Depreciations
Errors
Errors can be arisen in respect of recognition,
measurement, presentation or disclosure of
elements in financial statements
Examples: Mathematical mistakes, Mistakes in
applying
Accounting
Policies,
Oversight,
Misinterpretation of facts, Fraud
Disclosure - Changes in Accounting
Estimates
The nature and amount of a change in an
accounting estimate that has an effect in the
current period or is expected to have an effect on
future period.
Disclosure of prior period errors
1.
2.
3.
The nature of prior period error
The amount of correction
Description of how and from the error has
been corrected
Comparison
SLPSAS - 3
• Public sector
• Statement of financial position
• Statement of financial
•
•
•
•
•
performance
Accumulated surplus
Net assets/equity
Revenue
No conceptual framework
EPS does not required
LKAS - 8
• Private sector/GBEs
• Statement of financial position
• Statement of Comprehensive
•
•
•
•
•
Income
Retained earnings
Equity
Income
Conceptual framework available
EPS applicable
Example 1
1.Retrospective Restatement of error – Rs 6,500 omitted
from 2011 accounts & recognized as revenue in 2012
2012
2011
Revenue from taxation
60,000
34,000
User Charges
4,000
3,000
Other revenue
40,000
30,000
Total Revenue
104,000
67,000
Expenses
(86,500)
(60,000)
Surplus
17,500
7,000
Correction of prior period error/
Retrospective restatement)
2012
Revenue from taxation (60,000-6,500) 53,500
User Charges
4,000
Other revenue
40,000
Total Revenue
97,500
Expenses
(86,500)
Surplus
11,000
2011
40,500
3,000
(34,000+6,500)
30,000
73,500
(60,000)
13,500
Statement of Changes in Equity
Contributed
Capital
Balance 31.12.2010
Surplus for Y/E 31.12.2011
Balance as at 31.12.2011
Surplus for Y/E 31.12.2012
Balance as at 31.12.2012
5,000
5,000
5,000
Accu
Surplus
20,000
13,500
33,500
11,000
44,500
Total
25,000
13,500
38,500
11,000
49,500
Extract from notes to the financial statements
Revenue from taxation of Rs.6,500 was incorrectly
omitted from F/S OF 2011.The F/S of 2011 have been
restated to correct this error. The effect of restatement
on the F/S is summarized bellow. There is no effect in
2012
effect on 2011
Increase Revenue
6,500
Increase Surplus
6,500
Increase Debtors
6,500
Increase net assets/equity
6,500
Example 2 - Changes in accounting policy with retrospective application
Summary
 During 2012,the entity changed its accounting policy for the
treatment of borrowing costs .In previous periods, the entity
had capitalized such cost . The entity has now decided to
expense, rather than capitalized them.
Financial information
Capitalized borrowing cost 2011 Rs 2,600
Capitalized borrowing cost before 2011 Rs 5,200
Surplus before interest 2012 Rs,30,000,interest Rs 3,000
The entity has not recognized any depreciation on power
station, because it is not yet in used
Statement of Financial Performance
Surplus before interest
Interest expense
Surplus
2012
30,000
(3,000)
27,000
2011
18,000
(2,600)
15,400
Statements of changes in equity
Contributed
Capital
10,000
Balance at 31.12.2010
Changes of A/P with rep to
Interest (Note 1)
Balance at 31.12.2010
10,000
Surplus for Y/E 31.12.2011
Balance as at 31.12.2011 10,000
Surplus for the year
Closing at 31.12.2012
10,000
Accumulated
Total
Surplus
20,000
30,000
( 5,200)
14,800
15,400
30,200
27,000
57,200
(5,200)
24,800
15,400
40,200
27,000
67,200
Note to the accounts
Effect on 2011
(Increase) in interest expense
(Decrease) in surplus
Effect on period prior to 2011
(Decrease) in surplus
(Decrease) in accu surplus
(Rs 2,600)
(Rs 2,600)
(Rs.5,200)
(Rs.7,800)
Example -3 :Prospective application of change in accounting
policy when retrospective application is not practicable
During 2012,the entity changed its accounting policy
for depreciation PPE, so as to apply much more fully a
components approach, whilst at the same time
adopting the revaluation model
At the end of 2011 company had done an engineering
survey, which provided information on the components
held and their fair value, useful lives, estimated
residual value and depreciable amount at the
beginning of 2012.However it did not provide the cost
of those components
Due to non availability of cost of each components
The management decide to apply the new depreciation
policy
Property, Plants & Equipments
Cost
25,000
Depreciation
(14,000)
Net book value
11,000
Depreciation on old basis 1,500
Depreciation on new accounting policy – Revaluation
Model component basis
Property, Plants & Equipments
Survey Valuation
Estimated residual value
Avg remaining assets life (Years)
Depreciation on new basis
17,000
3,000
7
2,000
Summary
 Three areas – AP, Estimates, Errors
 Selection of AP
 Retrospective application
 Prospective application
 Accounting estimates
 Prior period errors
 Disclosures
 Applicable LKAS
Questions ?