Accounting Policies, Changes in Accounting Estimates and Errors - HKAS 8 Revised August 2020April 2021 Effective for annual periods beginning on ...
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HKAS 8
Revised August 2020April 2021
Effective for annual periods
beginning on or after 1 January 2005
Hong Kong Accounting Standard 8
Accounting Policies, Changes
in Accounting Estimates and
ErrorsHKAS 8 (August 2020April 2021) COPYRIGHT © Copyright 2020 2021 Hong Kong Institute of Certified Public Accountants This Hong Kong Financial Reporting Standard contains IFRS Foundation copyright material. Reproduction within Hong Kong in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment of the source. Requests and inquiries concerning reproduction and rights for commercial purposes within Hong Kong should be addressed to the Director, Finance and Operation, Hong Kong Institute of Certified Public Accountants, 37/F., Wu Chung House, 213 Queen's Road East, Wanchai, Hong Kong. All rights in this material outside of Hong Kong are reserved by IFRS Foundation. Reproduction of Hong Kong Financial Reporting Standards outside of Hong Kong in unaltered form (retaining this notice) is permitted for personal and non-commercial use only. Further information and requests for authorisation to reproduce for commercial purposes outside Hong Kong should be addressed to the IFRS Foundation at www.ifrs.org. Further details of the copyright notice form IFRS Foundation is available at http://app1.hkicpa.org.hk/ebook/copyright-notice.pdf © Copyright 2
HKAS 8 (February 2014August 2020)
CONTENTS
from paragraph
INTRODUCTION IN1
HONG KONG ACCOUNTING STANDARD 8
ACCOUNTING POLICIES, CHANGES IN ACCOUNTING
ESTIMATES AND ERRORS
OBJECTIVE 1
SCOPE 3
DEFINITIONS 5
ACCOUNTING POLICIES 7
Selection and application of accounting policies 7
Consistency of accounting policies 13
Changes in accounting policies 14
Applying changes in accounting policies 19
Retrospective application 22
Limitations on retrospective application 23
Disclosure 28
CHANGES IN ACCOUNTING ESTIMATES 32
Disclosure 39
ERRORS 41
Limitations on retrospective restatement 43
Disclosure of prior period errors 49
IMPRACTICABILITY IN RESPECT OF RETROSPECTIVE
APPLICATION AND RETROSPECTIVE RESTATEMENT 50
EFFECTIVE DATE AND TRANSITION 54
WITHDRAWAL OF OTHER PRONOUNCEMENTS 55
© Copyright 3HKAS 8 (August 2020April 2021)
APPENDICES:
A Comparison with International Accounting Standards
B Amendments to other pronouncements
C Amendments to Definition of Accounting Estimates
BASIS FOR CONCLUSIONS
APPENDIX:
Amendments to the Basis for Conclusions on Definition of Accounting Estimates
IMPLEMENTATION GUIDANCE
APPENDIX:
Amendments to the Guidance on implementing IAS 8 Definition of Accounting Estimates
TABLE OF CONCORDANCE
Hong Kong Accounting Standard 8 Accounting Policies,
Changes in Accounting Estimates and Errors (HKAS 8) is
set out in paragraphs 1-56 and the Appendix. All the
paragraphs have equal authority. HKAS 8 should be read in
the context of its objective and the Basis for Conclusions,
the Preface to Hong Kong Financial Reporting Standards
and the Conceptual Framework for Financial Reporting.
© Copyright 4HKAS 8 (January 2010)
Introduction
IN1 Hong Kong Accounting Standard 8 Accounting Policies, Changes in Accounting
Estimates and Errors (HKAS 8) should be applied for annual periods beginning on or
after 1 January 2005. Earlier application is encouraged.
Reasons for issuing HKAS 8
IN2 The objectives of the Hong Kong Institute of Certified Public Accountants (HKICPA)
issuing HKAS 8 were to reduce or eliminate alternatives, redundancies and conflicts
within the Standards, to deal with some convergence issues and to make other
improvements.
IN3 For HKAS 8, the HKICPA’s main objectives were:
(a) to remove the allowed alternative to retrospective application of voluntary
changes in accounting policies and retrospective restatement to correct prior
period errors;
(b) to eliminate the concept of a fundamental error;
(c) to articulate the hierarchy of guidance to which management refers, whose
applicability it considers when selecting accounting policies in the absence of
Standards and Interpretations that specifically apply; and
(d) to define material omissions or misstatements, and describe how to apply the
concept of materiality when applying accounting policies and correcting
errors.
(e) [Not used]
IN4 [Not used]
The main features
IN5 The main features of HKAS 8 are described below.
Selection of accounting policies
IN6 The requirements for the selection and application of accounting policies in SSAP 1
Presentation of Financial Statements have been transferred to the Standard. 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
Hong Kong Financial Reporting Standards (HKFRSs) that specifically apply.
© Copyright 5HKAS 8 (January 2010)
Materiality
IN7 The Standard defines material omissions or misstatements. It stipulates that:
(a) the accounting policies in HKFRSs need not be applied when the effect of
applying them is immaterial. This complements the statement in HKAS 1 that
disclosures required by HKFRSs need not be made if the information is
immaterial.
(b) financial statements do not comply with HKFRSs 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.
Voluntary changes in accounting policies and
corrections of prior period errors
IN8 The Standard requires retrospective application of voluntary changes in accounting
policies and retrospective restatement to correct prior period errors. It removes the
allowed alternative in SSAP 2:
(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.
IN9 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.
Impracticability
IN10 The Standard retains the ‘impracticability’ criterion for exemption from changing
comparative information when changes in accounting policies are applied
retrospectively and prior period errors are corrected. The Standard now includes a
definition of ‘impracticable’ and guidance on its interpretation.
IN11 The Standard 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.
Fundamental errors
© Copyright 6HKAS 8 (January 2010)
IN12 The Standard eliminates the concept of a fundamental error and thus the distinction
between fundamental errors and other material errors. The Standard defines prior
period errors.
Disclosures
IN13 The Standard now requires, rather than encourages, disclosure of an impending
change in accounting policy when an entity has yet to implement a new HKFRS that
has been issued but not yet come into effect. In addition, it requires disclosure of
known or reasonably estimable information relevant to assessing the possible impact
that application of the new HKFRS will have on the entity’s financial statements in
the period of initial application.
IN14 The Standard requires more detailed disclosure of the amounts of adjustments
resulting from changing accounting policies or correcting prior period errors. It
requires those disclosures to be made for each financial statement line item affected
and, if HKAS 33 Earnings per Share applies to the entity, for basic and diluted
earnings per share.
Others
IN15 The presentation requirements for profit or loss for the period have been transferred
to HKAS 1.
IN16 The Standard requires that:
(a) an entity selects and applies its accounting policies consistently for similar
transactions, other events and conditions, unless a HKFRS specifically
requires or permits categorisation of items for which different policies may
be appropriate; and
(b) if a HKFRS requires or permits such categorisation, an appropriate
accounting policy is selected and applied consistently to each category.
IN17 The Standard includes a definition of a change in accounting estimate.
IN18 The Standard 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.
© Copyright 7HKAS 8 (Revised September 2004)
Hong Kong Accounting Standard 8
Accounting Policies, Changes in Accounting Estimates and
Errors
Objective
1 The objective of this Standard is to prescribe the criteria for selecting and changing
accounting policies, together with the accounting treatment and disclosure of changes
in accounting policies, changes in accounting estimates and corrections of errors. The
Standard is intended to enhance the relevance and reliability of an entity’s financial
statements, and the comparability of those financial statements over time and with the
financial statements of other entities.
2 Disclosure requirements for accounting policies, except those for changes in
accounting policies, are set out in HKAS 1 Presentation of Financial Statements.
Scope
3 This Standard shall be applied in selecting and applying accounting policies, and
accounting for changes in accounting policies, changes in accounting estimates
and corrections of prior period errors.
4. The tax effects of corrections of prior period errors and of retrospective adjustments
made to apply changes in accounting policies are accounted for and disclosed in
accordance with HKAS 12 Income Taxes.
Definitions
5 The following terms are used in this Standard with the meanings specified:
Accounting policies are the specific principles, bases, conventions, rules and
practices applied by an entity in preparing and presenting financial statements.
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, assets and liabilities. Changes in accounting
estimates result from new information or new developments and, accordingly,
are not corrections of errors.
Hong Kong Financial Reporting Standards (HKFRSs) are Standards and
Interpretations issued by the Hong Kong Institute of Certified Public
Accountants (HKICPA). They comprise:
(a) Hong Kong Financial Reporting Standards;
(b) Hong Kong Accounting Standards; and
(c) Interpretations.
© Copyright 8HKAS 8 (January 2010August 2020)
Material Omissions or misstatements of items are material if they could,
individually or collectively, influence the economic decisions that users make on
the basis of the financial statements. Materiality depends on the size and nature
of the omission or misstatement judged in the surrounding circumstances. The
size or nature of the item, or a combination of both, could be the determining
factor.is defined in paragraph 7 of HKAS 1 and is used in this Standard with the
same meaning.
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
authorised 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.
Such errors include the effects of mathematical mistakes, mistakes in applying
accounting policies, oversights or misinterpretations of facts, and fraud.
Retrospective application is applying a new accounting policy to transactions,
other events and conditions as if that policy had always been applied.
Retrospective restatement is correcting the recognition, measurement and
disclosure of amounts of elements of financial statements as if a prior period
error had never occurred.
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 if:
(a) the effects of the retrospective application or retrospective restatement
are not determinable;
(b) the retrospective application or retrospective restatement requires
assumptions about what management’s intent would have been in that
period; or
(c) the retrospective application or retrospective restatement requires
significant estimates of amounts and it is impossible to distinguish
objectively information about those estimates that:
(i) provides evidence of circumstances that existed on the date(s) as
at which those amounts are to be recognised, measured or
disclosed; and
(ii) would have been available when the financial statements for that
prior period were authorised for issue from other information.
© Copyright 9HKAS 8 (February 2014August 2020)
Prospective application of a change in accounting policy and of recognising the
effect of a change in an accounting estimate, respectively, are:
(a) applying the new accounting policy to transactions, other events and
conditions occurring after the date as at which the policy is changed; and
(b) recognising the effect of the change in the accounting estimate in the
current and future periods affected by the change.
6 Assessing whether an omission or misstatement could influence economic decisions
of users, and so be material, requires consideration of the characteristics of those
users. The Framework for the Preparation and Presentation of Financial Statements
states in paragraph 25 that ‘users are assumed to have a reasonable knowledge of
business 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 economic decisions.[Deleted]
Accounting policies
Selection and application of accounting policies
7 When a HKFRS specifically applies to a transaction, other event or condition,
the accounting policy or policies applied to that item shall be determined by
applying the HKFRS.
8 HKFRSs set out accounting policies that the HKICPA has concluded result in
financial statements containing relevant and reliable information about the
transactions, other events and conditions to which they apply. Those policies need not
be applied when the effect of applying them is immaterial. However, it is
inappropriate to make, or leave uncorrected, immaterial departures from HKFRSs to
achieve a particular presentation of an entity’s financial position, financial
performance or cash flows.
9 HKFRSs are accompanied by guidance to assist entities in applying their requirements.
All such guidance states whether it is an integral part of HKFRSs. Guidance that is an
integral part of HKFRSs is mandatory. Guidance that is not an integral part of HKFRSs
does not contain requirements for financial statements.
10 In the absence of a HKFRS that specifically applies to a transaction, other event
or condition, management shall use its judgement in developing and applying an
accounting policy that results in information that is:
(a) relevant to the economic decision-making needs of users; and
In October 2010 the HKICPA replaced the Framework with the Conceptual Framework for
Financial Reporting. Paragraph 25 was superseded by Chapter 3 of the Conceptual Framework.
© Copyright 10HKAS 8 (February 2014August 2020)
(b) reliable, in that the financial statements:
(i) represent faithfully the financial position, financial performance
and cash flows of the entity;
(ii) reflect the economic substance of transactions, other events and
conditions, and not merely the legal form;
(iii) are neutral, ie free from bias;
(iv) are prudent; and
(v) are complete in all material respects.
11 In making the judgement described in paragraph 10, management shall refer to,
and consider the applicability of, the following sources in descending order:
(a) the requirements in HKFRSs dealing with similar and related issues;
and
(b) the definitions, recognition criteria and measurement concepts for assets,
liabilities, income and expenses in the FrameworkConceptual Framework
for Financial Reporting (Conceptual Framework＃.
12 In making the judgement described in paragraph 10, management may also
consider the most recent pronouncements of other standard-setting bodies that
use a similar conceptual framework to develop accounting standards, other
accounting literature* and accepted industry practices, to the extent that these
do not conflict with the sources in paragraph 11.
Consistency of accounting policies
13 An entity shall select and apply its accounting policies consistently for similar
transactions, other events and conditions, unless a HKFRS specifically requires
or permits categorisation of items for which different policies may be
appropriate. If a HKFRS requires or permits such categorisation, an
appropriate accounting policy shall be selected and applied consistently to each
category.
Changes in accounting policies
14 An entity shall change an accounting policy only if the change:
(a) is required by a HKFRS; or
(b) 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.
In October 2010 the HKICPA replaced the Framework with the Conceptual Framework for
Financial Reporting.
＃
Paragraph 54G explains how this requirement is amended for regulatory account balances.
*
In the context of Hong Kong, other accounting literature includes Accounting Guidelines and
Accounting Bulletins.
© Copyright 11HKAS 8 (March 2004)
15 Users of financial statements need to be able to compare the financial statements of
an entity over time to identify trends in its financial position, financial performance
and cash flows. Therefore, the same accounting policies are applied within each
period and from one period to the next unless a change in accounting policy meets
one of the criteria in paragraph 14.
16 The following are not changes in accounting policies:
(a) the application of an accounting policy for transactions, other events or
conditions that differ in substance from those previously occurring; and
(b) the application of a new accounting policy for transactions, other events
or conditions that did not occur previously or were immaterial.
17 The initial application of a policy to revalue assets in accordance with HKAS 16
Property, Plant and Equipment or HKAS 38 Intangible Assets is a change in an
accounting policy to be dealt with as a revaluation in accordance with HKAS 16
or HKAS 38, rather than in accordance with this Standard.
18 Paragraphs 19-31 do not apply to the change in accounting policy described in
paragraph 17.
Applying changes in accounting policies
19 Subject to paragraph 23:
(a) an entity shall account for a change in accounting policy resulting from
the initial application of a Standard or an Interpretation HKFRS in
accordance with the specific transitional provisions, if any, in that
Standard or Interpretation HKFRS; and
(b) when an entity changes an accounting policy upon initial application of a
Standard or an Interpretation HKFRS that does not include specific
transitional provisions applying to that change, or changes an accounting
policy voluntarily, it shall apply the change retrospectively.
20 For the purpose of this Standard, early application of a Standard or an Interpretation
HKFRS is not a voluntary change in accounting policy.
21 In the absence of a Standard or an Interpretation HKFRS that specifically applies to a
transaction, other event or condition, management may, in accordance with paragraph
12, apply an accounting policy from the most recent pronouncements of other
standard-setting bodies that use a similar conceptual framework to develop
accounting standards. If, following an amendment of such a pronouncement, the
entity chooses to change an accounting policy, that change is accounted for and
disclosed as a voluntary change in accounting policy.
Retrospective application
22 Subject to paragraph 23, when a change in accounting policy is applied
retrospectively in accordance with paragraph 19(a) or (b), the entity shall adjust
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 as if the new accounting policy had always been applied.
© Copyright 12HKAS 8 (March 2004)
Limitations on retrospective application
23 When retrospective application is required by paragraph 19(a) or (b), a change
in accounting policy shall be applied retrospectively except to the extent that it is
impracticable to determine either the period-specific effects or the cumulative
effect of the change.
24 When it is impracticable to determine the period-specific effects of changing an
accounting policy on comparative information 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 equity for that period.
25 When 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.
26 When an entity applies a new accounting policy retrospectively, it applies the new
accounting policy to comparative information for prior periods as far back as is
practicable. Retrospective application to a prior period is not practicable unless it is
practicable to determine the cumulative effect on the amounts in both the opening and
closing balance sheets statements of financial position for that period. The amount of
the resulting adjustment relating to periods before those presented in the financial
statements is made to the opening balance of each affected component of equity of
the earliest prior period presented. Usually the adjustment is made to retained
earnings. However, the adjustment may be made to another component of equity (for
example, to comply with a HKFRS). Any other information about prior periods, such
as historical summaries of financial data, is also adjusted as far back as is practicable.
27 When it is impracticable for an entity to apply a new accounting policy
retrospectively, because it cannot determine the cumulative effect of applying the
policy to all prior periods, the entity, in accordance with paragraph 25, applies the
new policy prospectively from the start of the earliest period practicable. It therefore
disregards the portion of the cumulative adjustment to assets, liabilities and equity
arising before that date. Changing an accounting policy is permitted even if it is
impracticable to apply the policy prospectively for any prior period. Paragraphs 50-53
provide guidance on when it is impracticable to apply a new accounting policy to one
or more prior periods.
Disclosure
28 When initial application of a Standard or an InterpretationHKFRS has an effect
on the current period or any prior period, would have such an effect except that
it is impracticable to determine the amount of the adjustment, or might have an
effect on future periods, an entity shall disclose:
(a) the title of the Standard or InterpretationHKFRS;
(b) when applicable, that the change in accounting policy is made in
accordance with its transitional provisions;
© Copyright 13HKAS 8 (March 2004)
(c) the nature of the change in accounting policy;
(d) when applicable, a description of the transitional provisions;
(e) when applicable, the transitional provisions that might have an effect on
future periods;
(f) for the current period and each prior period presented, to the extent
practicable, the amount of the adjustment:
(i) for each financial statement line item affected; and
(ii) if HKAS 33 Earnings per Share applies to the entity, for basic and
diluted earnings per share;
(g) the amount of the adjustment relating to periods before those presented,
to the extent practicable; and
(h) if retrospective application required by paragraph 19(a) or (b) is
impracticable for a particular prior period, or for periods before those
presented, the circumstances that led to the existence of that condition
and a description of how and from when the change in accounting policy
has been applied.
Financial statements of subsequent periods need not repeat these disclosures.
29 When a voluntary change in accounting policy has an effect on the current
period or any prior period, would have an effect on that period except that it is
impracticable to determine the amount of the adjustment, or might have an
effect on future periods, an entity shall disclose:
(a) the nature of the change in accounting policy;
(b) the reasons why applying the new accounting policy provides reliable
and more relevant information;
(c) for the current period and each prior period presented, to the extent
practicable, the amount of the adjustment:
(i) for each financial statement line item affected; and
(ii) if HKAS 33 applies to the entity, for basic and diluted earnings
per share;
(d) the amount of the adjustment relating to periods before those presented,
to the extent practicable; and
(e) if retrospective application is impracticable for a particular prior period,
or for periods before those presented, the circumstances that led to the
existence of that condition and a description of how and from when the
change in accounting policy has been applied.
© Copyright 14HKAS 8 (March 2004)
Financial statements of subsequent periods need not repeat these disclosures.
30 When an entity has not applied a new Standard or Interpretation HKFRS that
has been issued but is not yet effective, the entity shall disclose:
(a) this fact; and
(b) known or reasonably estimable information relevant to assessing the
possible impact that application of the new Standard or Interpretation
HKFRS will have on the entity’s financial statements in the period of
initial application.
31 In complying with paragraph 30, an entity considers disclosing:
(a) the title of the new Standard or Interpretation HKFRS;
(b) the nature of the impending change or changes in accounting policy;
(c) the date by which application of the Standard or Interpretation HKFRS is
required;
(d) the date as at which it plans to apply the Standard or InterpretationHKFRS
initially; and
(e) either:
(i) a discussion of the impact that initial application of the Standard or
InterpretationHKFRS is expected to have on the entity’s financial
statements; or
(ii) if that impact is not known or reasonably estimable, a statement to
that effect.
Changes in accounting estimates
32 As a result of the uncertainties inherent in business activities, many items in financial
statements cannot be measured with precision but can only be estimated. Estimation
involves judgements based on the latest available, reliable information. For example,
estimates may be required of:
(a) bad debts;
(b) inventory obsolescence;
(c) the fair value of financial assets or financial liabilities;
(d) the useful lives of, or expected pattern of consumption of the future economic
benefits embodied in, depreciable assets; and
(e) warranty obligations.
33 The use of reasonable estimates is an essential part of the preparation of financial
statements and does not undermine their reliability.
© Copyright 15HKAS 8 (March 2004)
34 An estimate may need revision if changes occur in the circumstances on which the
estimate was based or as a result of new information or more experience. By its
nature, the revision of an estimate does not relate to prior periods and is not the
correction of an error.
35 A change in the measurement basis applied is a change in an accounting policy, and is
not a change in an accounting estimate. When it is difficult to distinguish a change in
an accounting policy from a change in an accounting estimate, the change is treated
as a change in an accounting estimate.
36 The effect of a change in an accounting estimate, other than a change to which
paragraph 37 applies, shall be recognised prospectively by including it in profit
or loss in:
(a) the period of the change, if the change affects that period only; or
(b) the period of the change and future periods, if the change affects both.
37 To the extent that a change in an accounting estimate gives rise to changes in
assets and liabilities, or relates to an item of equity, it shall be recognised by
adjusting the carrying amount of the related asset, liability or equity item in the
period of the change.
38 Prospective recognition of the effect of a change in an accounting estimate means that
the change is applied to transactions, other events and conditions from the date of the
change in estimate. A change in an accounting estimate may affect only the current
period’s profit or loss, or the profit or loss of both the current period and future
periods. For example, a change in the estimate of the amount of bad debts affects only
the current period’s profit or loss and therefore is recognised in the current period.
However, a change in the estimated useful life of, or the expected pattern of
consumption of the future economic benefits embodied in, a depreciable asset affects
depreciation expense for the current period and for each future period during the
asset’s remaining useful life. In both cases, the effect of the change relating to the
current period is recognised as income or expense in the current period. The effect, if
any, on future periods is recognised as income or expense in those future periods.
Disclosure
39 An entity shall disclose 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
in future periods, except for the disclosure of the effect on future periods when it
is impracticable to estimate that effect.
40 If the amount of the effect in future periods is not disclosed because estimating it
is impracticable, an entity shall disclose that fact.
Errors
41 Errors can arise in respect of the recognition, measurement, presentation or disclosure
of elements of financial statements. Financial statements do not comply with
HKFRSs if they contain either material errors or immaterial errors made intentionally
to achieve a particular presentation of an entity’s financial position, financial
performance or cash flows. Potential current period errors discovered in that period
© Copyright 16HKAS 8 (March 2004)
are corrected before the financial statements are authorised for issue. However,
material errors are sometimes not discovered until a subsequent period, and these
prior period errors are corrected in the comparative information presented in the
financial statements for that subsequent period (see paragraphs 42-47).
42 Subject to paragraph 43, an entity shall correct material prior period errors
retrospectively in the first set of financial statements authorised for issue after
their discovery by:
(a) restating the comparative amounts for the prior period(s) presented in
which the error occurred; or
(b) if the error occurred before the earliest prior period presented, restating
the opening balances of assets, liabilities and equity for the earliest prior
period presented.
Limitations on retrospective restatement
43 A prior period error shall be corrected by retrospective restatement except to
the extent that it is impracticable to determine either the period-specific effects
or the cumulative effect of the error.
44 When it is impracticable to determine the period-specific effects of an error on
comparative information for one or more prior periods presented, the entity
shall restate the opening balances of assets, liabilities and equity for the earliest
period for which retrospective restatement is practicable (which may be the
current period).
45 When it is impracticable to determine the cumulative effect, at the beginning of
the current period, of an error on all prior periods, the entity shall restate the
comparative information to correct the error prospectively from the earliest date
practicable.
46 The correction of a prior period error is excluded from profit or loss for the period in
which the error is discovered. Any information presented about prior periods,
including any historical summaries of financial data, is restated as far back as is
practicable.
47 When it is impracticable to determine the amount of an error (eg a mistake in
applying an accounting policy) for all prior periods, the entity, in accordance with
paragraph 45, restates the comparative information prospectively from the earliest
date practicable. It therefore disregards the portion of the cumulative restatement of
assets, liabilities and equity arising before that date. Paragraphs 50-53 provide
guidance on when it is impracticable to correct an error for one or more prior periods.
48 Corrections of errors are distinguished from changes in accounting estimates.
Accounting estimates by their nature are approximations that may need revision as
additional information becomes known. For example, the gain or loss recognised on
the outcome of a contingency is not the correction of an error.
© Copyright 17HKAS 8 (March 2004)
Disclosure of prior period errors
49 In applying paragraph 42, an entity shall disclose the following:
(a) the nature of the prior period error;
(b) for each prior period presented, to the extent practicable, the amount of
the correction:
(i) for each financial statement line item affected; and
(ii) if HKAS 33 applies to the entity, for basic and diluted earnings
per share;
(c) the amount of the correction at the beginning of the earliest prior period
presented; and
(d) if retrospective restatement is impracticable for a particular prior period,
the circumstances that led to the existence of that condition and a
description of how and from when the error has been corrected.
Financial statements of subsequent periods need not repeat these disclosures.
Impracticability in respect of retrospective application and
retrospective restatement
50 In some circumstances, it is impracticable to adjust comparative information for one
or more prior periods to achieve comparability with the current period. For example,
data may not have been collected in the prior period(s) in a way that allows either
retrospective application of a new accounting policy (including, for the purpose of
paragraphs 51-53, its prospective application to prior periods) or retrospective
restatement to correct a prior period error, and it may be impracticable to recreate the
information.
51 It is frequently necessary to make estimates in applying an accounting policy to
elements of financial statements recognised or disclosed in respect of transactions,
other events or conditions. Estimation is inherently subjective, and estimates may be
developed after the balance sheet date reporting period. Developing estimates is
potentially more difficult when retrospectively applying an accounting policy or
making a retrospective restatement to correct a prior period error, because of the
longer period of time that might have passed since the affected transaction, other
event or condition occurred. However, the objective of estimates related to prior
periods remains the same as for estimates made in the current period, namely, for the
estimate to reflect the circumstances that existed when the transaction, other event or
condition occurred.
52 Therefore, retrospectively applying a new accounting policy or correcting a prior
period error requires distinguishing information that
(a) provides evidence of circumstances that existed on the date(s) as at which the
transaction, other event or condition occurred, and
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(b) would have been available when the financial statements for that prior period
were authorised for issue
from other information. For some types of estimates (eg a fair value measurement that
uses significant unobservable inputs), it is impracticable to distinguish these types of
information. When retrospective application or retrospective restatement would
require making a significant estimate for which it is impossible to distinguish these
two types of information, it is impracticable to apply the new accounting policy or
correct the prior period error retrospectively.
53 Hindsight should not be used when applying a new accounting policy to, or correcting
amounts for, a prior period, either in making assumptions about what management’s
intentions would have been in a prior period or estimating the amounts recognised,
measured or disclosed in a prior period. For example, when an entity corrects a prior
period error in calculating its liability for employees’ accumulated sick leave in
accordance with HKAS 19 Employee Benefits, it disregards information about an
unusually severe influenza season during the next period that became available after
the financial statements for the prior period were authorised for issue. The fact that
significant estimates are frequently required when amending comparative information
presented for prior periods does not prevent reliable adjustment or correction of the
comparative information.
Effective date and transition
54 An entity shall apply this Standard for annual periods beginning on or after 1
January 2005. Earlier application is encouraged. If an entity applies this
Standard for a period beginning before 1 January 2005, it shall disclose that
fact.
54a If an entity decides to apply this Standard for an earlier period, it is not required to
apply all the HKASs with the same effective date for that same period. However, it is
required to apply the amendments set out in the appendix on amendments to other
pronouncements for that earlier period.
54A [Deleted]
54B [Deleted]
54C HKFRS 13 Fair Value Measurement, issued in June 2011, amended paragraph 52. An
entity shall apply that amendment when it applies HKFRS 13.
54D [Deleted]
54E HKFRS 9 Financial Instruments, as issued in September 2014, amended paragraph
53 and deleted paragraphs 54A, 54B and 54D. An entity shall apply those
amendments when it applies HKFRS 9.
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54F Amendments to References to the Conceptual Framework in HKFRS Standards,
issued in 2018, amended paragraphs 6 and 11(b). An entity shall apply those
amendments for annual periods beginning on or after 1 January 2020. Earlier
application is permitted if at the same time an entity also applies all other
amendments made by Amendments to References to the Conceptual Framework in
HKFRS Standards. An entity shall apply the amendments to paragraphs 6 and 11(b)
retrospectively in accordance with this Standard. However, if an entity determines
that retrospective application would be impracticable or would involve undue cost or
effort, it shall apply the amendments to paragraphs 6 and 11(b) by reference to
paragraphs 23–28 of this Standard. If retrospective application of any amendment in
Amendments to References to the Conceptual Framework in HKFRS Standards would
involve undue cost or effort, an entity shall, in applying paragraphs 23–28 of this
Standard, read any reference except in the last sentence of paragraph 27 to ‘is
impracticable’ as ‘involves undue cost or effort’ and any reference to ‘practicable’ as
‘possible without undue cost or effort’.
54G If an entity does not apply HKFRS 14 Regulatory Deferral Accounts, the entity shall,
in applying paragraph 11(b) to regulatory account balances, continue to refer to, and
consider the applicability of, the definitions, recognition criteria, and measurement
concepts in the Framework for the Preparation and Presentation of Financial
Statements＊ instead of those in the Conceptual Framework. A regulatory account
balance is the balance of any expense (or income) account that is not recognised as an
asset or a liability in accordance with other applicable HKFRS Standards but is
included, or is expected to be included, by the rate regulator in establishing the rate(s)
that can be charged to customers. A rate regulator is an authorised body that is
empowered by statute or regulation to establish the rate or a range of rates that bind
an entity. The rate regulator may be a third-party body or a related party of the entity,
including the entity’s own governing board, if that body is required by statute or
regulation to set rates both in the interest of the customers and to ensure the overall
financial viability of the entity.
54H Definition of Material (Amendments to HKAS 1 and HKAS 8), issued in January
2019, amended paragraph 7 of HKAS 1 and paragraph 5 of HKAS 8, and deleted
paragraph 6 of HKAS 8. An entity shall apply those amendments prospectively for
annual periods beginning on or after 1 January 2020. Earlier application is permitted.
If an entity applies those amendments for an earlier period, it shall disclose that fact.
Withdrawal of other pronouncements
55 This Standard supersedes SSAP 2 Net Profit or Loss for the Period, Fundamental
Errors and Changes in Accounting Policies, revised in 2001.
56 [Not used]
＊
The reference is to the Framework for the Preparation and Presentation of Financial Statements.
© Copyright 19AHKAS 8 (March 2004)) Appendix A Comparison with International Accounting Standards This comparison appendix, which was prepared as at 9 March 2004 and deals only with significant differences in the standards extant, is produced for information only and does not form part of the standards in HKAS 8. The International Accounting Standard comparable with HKAS 8 is IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. There are no major textual differences between HKAS 8 and IAS 8. © Copyright 20
HKAS 8 (December 2007January 2010)
Appendix B
Amendments to other pronouncements
The amendments in this appendix shall be applied for annual periods beginning on or after 1
January 2005. If an entity applies this Standard for an earlier period, these amendments shall
be applied for that earlier period.
***
The amendments contained in this appendix when this Standard was issued have been
incorporated into the relevant Standards.
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Appendix C
Amendments to Definition of Accounting Estimates
The following sets out amendments required for this Standard resulting from amendments to
HKAS 8 that are not yet effective. Once effective, the amendments set out below will be
incorporated into the text of this Standard and this appendix will be deleted.
Paragraphs 5, 32, 34, 38 and 48 and the heading above paragraph 32 are amended. Paragraphs
32A–32B, 34A and 54I and the headings above paragraphs 34 and 36 are added. The heading above
paragraph 39 is amended to be a sub-heading of the heading added above paragraph 34. Deleted text is
struck through and new text is underlined.
Definitions
5 The following terms are used in this Standard with the meanings specified:
…
Accounting estimates are monetary amounts in financial statements that are
subject to measurement uncertainty.
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, assets and liabilities. Changes in accounting
estimates result from new information or new developments and, accordingly,
are not corrections of errors.
…
Accounting Changes in accounting estimates
32 An accounting policy may require items in financial statements to be measured in a
way that involves measurement uncertainty—that is, the accounting policy may
require such items to be measured at monetary amounts that cannot be observed
directly and must instead be estimated. In such a case, an entity develops an
accounting estimate to achieve the objective set out by the accounting policy. As a
result of the uncertainties inherent in business activities, many items in financial
statements cannot be measured with precision but can only be estimated. Developing
accounting estimates involves the use of judgements or assumptions Estimation
involves judgements based on the latest available, reliable information. Examples of
accounting estimates include For example, estimates may be required of:
(a) a loss allowance for expected credit losses, applying HKFRS 9 Financial
Instrumentsbad debts;
(b) the net realisable value of an item of inventory, applying HKAS 2
Inventoriesinventory obsolescence;
(c) the fair value of an asset or liability, applying HKFRS 13 Fair Value
Measurement financial assets or financial liabilities;
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(d) the depreciation expense for an item of property, plant and equipment,
applying HKAS 16the useful lives of, or expected pattern of consumption of
the future economic benefits embodied in, depreciable assets; and
(e) a provision for warranty obligations, applying HKAS 37 Provisions,
Contingent Liabilities and Contingent Assets.
32A An entity uses measurement techniques and inputs to develop an accounting estimate.
Measurement techniques include estimation techniques (for example, techniques
used to measure a loss allowance for expected credit losses applying HKFRS 9) and
valuation techniques (for example, techniques used to measure the fair value of an
asset or liability applying HKFRS 13).
32B The term ‘estimate’ in HKFRSs sometimes refers to an estimate that is not an
accounting estimate as defined in this Standard. For example, it sometimes refers to
an input used in developing accounting estimates.
…
Changes in accounting estimates
34 An entity may need to change an accounting estimate may need revision if changes
occur in the circumstances on which the accounting estimate was based or as a result
of new information, new developments or more experience. By its nature, a change
in an accounting the revision of an estimate does not relate to prior periods and is not
the correction of an error.
34A The effects on an accounting estimate of a change in an input or a change in a
measurement technique are changes in accounting estimates unless they result from
the correction of prior period errors.
…
Applying changes in accounting estimates
…
38 Prospective recognition of the effect of a change in an accounting estimate means
that the change is applied to transactions, other events and conditions from the date
of that the change in estimate. A change in an accounting estimate may affect only
the current period’s profit or loss, or the profit or loss of both the current period and
future periods. For example, a change in a loss allowance for expected credit losses
the estimate of the amount of bad debts affects only the current period’s profit or loss
and therefore is recognised in the current period. However, a change in the estimated
useful life of, or the expected pattern of consumption of the future economic benefits
embodied in, a depreciable asset affects depreciation expense for the current period
and for each future period during the asset’s remaining useful life. In both cases, the
effect of the change relating to the current period is recognised as income or expense
in the current period. The effect, if any, on future periods is recognised as income or
expense in those future periods.
Disclosure
Disclosure
…
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Errors
…
48 Corrections of errors are distinguished from changes in accounting estimates.
Accounting estimates by their nature are approximations that may need changing
revision as additional information becomes known. For example, the gain or loss
recognised on the outcome of a contingency is not the correction of an error.
…
Effective date and transition
…
54I Definition of Accounting Estimates, issued in April 2021, amended paragraphs 5, 32,
34, 38 and 48 and added paragraphs 32A, 32B and 34A. An entity shall apply these
amendments for annual reporting periods beginning on or after 1 January 2023.
Earlier application is permitted. An entity shall apply the amendments to changes in
accounting estimates and changes in accounting policies that occur on or after the
beginning of the first annual reporting period in which it applies the amendments.
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Basis for Conclusions on
IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors
This Basis for Conclusions accompanies, but is not part of, IAS 8.
HKAS 8 is based on IAS 8, Accounting Policies, Changes in Accounting Estimates and
Errors. In approving HKAS 8, the Council of the Hong Kong Institute of Certified Public
Accountants considered and agreed with the IASB’s basis for conclusions on IAS 8 (as
revised 2003). Accordingly, there are no significant differences between HKAS 8 and IAS 8.
The IASB’s basis for conclusions is reproduced below for reference. The paragraph numbers
of IAS 8 referred to below generally correspond with those in HKAS 8.
Introduction
BC1 This Basis for Conclusions summarises the International Accounting Standards
Board’s considerations in reaching its conclusions on revising IAS 8 Net Profit or
Loss for the Period, Fundamental Errors and Changes in Accounting Policies in
2003. Individual Board members gave greater weight to some factors than to others.
BC2 In July 2001 the Board announced that, as part of its initial agenda of technical
projects, it would undertake a project to improve a number of Standards, including
IAS 8. The project was undertaken in the light of queries and criticisms raised in
relation to the Standards by securities regulators, professional accountants and other
interested parties. The objectives of the Improvements project were to reduce or
eliminate alternatives, redundancies and conflicts within Standards, to deal with some
convergence issues and to make other improvements. In May 2002 the Board
published its proposals in an Exposure Draft of Improvements to International
Accounting Standards, with a comment deadline of 16 September 2002. The Board
received over 160 comment letters on the Exposure Draft.
BC3 The Standard includes extensive changes to the previous version of IAS 8. The
Board’s intention was not to reconsider all of the previous Standard’s requirements
for selecting and applying accounting policies, and accounting for changes in
accounting policies, changes in accounting estimates and corrections of errors.
Accordingly, this Basis for Conclusions does not discuss requirements in IAS 8 that
the Board did not reconsider.
Removing allowed alternative treatments
BC4 The previous version of IAS 8 included allowed alternative treatments of voluntary
changes in accounting policies (paragraphs 54-57) and corrections of fundamental
errors (paragraphs 38-40). Under those allowed alternatives:
(a) the adjustment resulting from retrospective application of a change in an
accounting policy was included in profit or loss for the current period; and
(b) the amount of the correction of a fundamental error was included in profit or
loss for the current period.
BC5 In both circumstances, comparative information was presented as it was presented in
the financial statements of prior periods.
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BC6 The Board identified the removal of optional treatments for changes in accounting
policies and corrections of errors as an important improvement to the previous
version of IAS 8. The Standard removes the allowed alternative treatments and
requires changes in accounting policies and corrections of prior period errors to be
accounted for retrospectively.
BC7 The Board concluded that retrospective application made by amending the
comparative information presented for prior periods is preferable to the previously
allowed alternative treatments because, under the now required method of
retrospective application:
(a) profit or loss for the period of the change does not include the effects of
changes in accounting policies or errors relating to prior periods.
(b) information presented about prior periods is prepared on the same basis as
information about the current period, and is therefore comparable. This
information possesses a qualitative characteristic identified in the Framework
for the Preparation and Presentation of Financial Statements (Framework),
and provides the most useful information for trend analysis of income and
expenses.
(c) prior period errors are not repeated in comparative information presented for
prior periods.
BC8 Some respondents to the Exposure Draft argued that the previously allowed
alternative treatments are preferable because:
(a) correcting prior period errors by restating prior period information involves
an unjustifiable use of hindsight;
(b) recognising the effects of changes in accounting policies and corrections of
errors in current period profit or loss makes them more prominent to users of
financial statements; and
(c) each amount credited or debited to retained earnings as a result of an entity’s
activities has been recognised in profit or loss in some period.
BC9 The Board concluded that restating prior period information to correct a prior period
error does not involve an unjustifiable use of hindsight because prior period errors are
defined in terms of a failure to use, or misuse of, reliable information that was
available when the prior period financial statements were authorised for issue and
could reasonably be expected to have been obtained and taken into account in the
preparation and presentation of those financial statements.
BC10 The Board also concluded that the disclosures about changes in accounting policies
and corrections of prior period errors in paragraphs 28, 29 and 49 of the Standard
should ensure that their effects are sufficiently prominent to users of financial
statements.
BC11 The Board further concluded that it is less important for each amount credited or
debited to retained earnings as a result of an entity’s activities to be recognised in
profit or loss in some period than for the profit or loss for each period presented to
represent faithfully the effects of transactions and other events occurring in that
period.
References to the Framework in this Basis for Conclusions are to the IASC's Framework for the
Preparation and Presentation of Financial Statements, was adopted by the IASB Board in 2001
and in effect when the Standard was revised. In September 2010 the IASB replaced the
Framework with the Conceptual Framework for Financial Reporting.
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Eliminating the distinction between fundamental errors and other material prior
period errors
BC12 The Standard eliminates the distinction between fundamental errors and other
material prior period errors. As a result, all material prior period errors are accounted
for in the same way as a fundamental error was accounted for under the retrospective
treatment in the previous version of IAS 8. The Board concluded that the definition of
‘fundamental errors’ in the previous version was difficult to interpret consistently
because the main feature of the definition—that the error causes the financial
statements of one or more prior periods no longer to be considered to have been
reliable—was also a feature of all material prior period errors.
Applying a Standard or an Interpretation that specifically applies to an item
BC13 The Exposure Draft proposed that when a Standard or an Interpretation applies to an
item in the financial statements, the accounting policy (or policies) applied to that
item is (are) determined by considering the following in descending order:
(a) the Standard (including any Appendices that form part of the Standard);
(b) the Interpretation;
(c) Appendices to the Standard that do not form a part of the Standard; and
(d) Implementation Guidance issued in respect of the Standard.
BC14 The Board decided not to set out a hierarchy of requirements for these circumstances.
The Standard requires only applicable Standards and Interpretations IFRSs to be
applied. In addition, it does not mention Appendices.
BC15 The Board decided not to rank Standards above Interpretations because the definition
of International Financial Reporting Standards (IFRSs) includes Interpretations,
which are equal in status to Standards. The rubric to each Standard clarifies what
material constitutes the requirements of an IFRS and what is Implementation
Guidance*. The term ‘Appendix’ is retained only for material that is part of an IFRS.
Pronouncements of other standard-setting bodies
BC16 The Exposure Draft proposed that in the absence of a Standard or an Interpretation
specifically applying to an item, management should develop and apply an
accounting policy by considering, among other guidance, pronouncements of other
standard-setting bodies that use a similar conceptual framework to develop
accounting standards. Respondents to the Exposure Draft commented that this could
require entities to consider the pronouncements of various other standard-setting
bodies when IASB guidance does not exist. Some commentators argued that, for
example, it could require consideration of all components of US GAAP on some
topics. After considering these comments, the Board decided that the Standard should
indicate that considering such pronouncements is voluntary (see paragraph 12 of the
Standard).
*
In 2007 the Board was advised that paragraphs 7 and 9 may appear to conflict, and may be
misinterpreted to require mandatory consideration of Implementation Guidance. The Board
amended paragraphs 7, 9 and 11 by Improvements to IFRSs issued in May 2008 to state that only
guidance that is identified as an integral part of IFRSs is mandatory.
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