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• Applies to all companies and other entities that must prepare and lodge Corporations Act financial reports. It also applies to the general-purpose financial reports of reporting entities in both the for-profit sector and not-for profit sector, which includes the public sector
• Applied to:
  • The selection and application of accounting policies
  • Accounting for changes in accounting policies
  • Changes in accounting estimates
  • Corrections of prior period errors

• When an Australian Accounting Standard specifically applies to a transaction or event, the accounting policy or policies applied to that item is determined by applying the standard.
• In the absence of an Australian Accounting Standard that specifically applies to a transaction, other event or condition, management must use its judgement to develop and apply accounting policy/policies that result in information that is relevant and reliable. Relevance relates to the economic decision-making needs of users. Reliability relates to faithful representation, substance over form, neutrality, prudence and completeness
• In making its judgements about accounting policies, management must refer to and consider the applicability of the following:
  1. Firstly, the requirements in Australian Accounting Standards dealing with similar and related issues; and
  2. Secondly, the definitions, recognition criteria and measurement concepts in the Framework.
• After the two overriding sources mentioned above, management may also refer to and consider the following:
  • The most recent pronouncements of other conceptually consistent standard setting bodies
  • Other accounting literature accepted industry practices
• Accounting policies must be selected and applied consistently to similar transactions, other events and conditions
• A change in an accounting policy must only be made if:
  • Required by Australian Accounting Standard; or
  • The change will result in the financial report providing reliable and more relevant information about the financial performance, financial position and cash flows of the entity.
• A mandatory change in accounting policy resulting from the initial application of an Australian Accounting Standard must be accounted for in accordance with the specific transitional provisions of that Standard or retrospectively if no such provisions exist
• A voluntary change in accounting policy must be applied retrospectively except to the extent that it is impracticable
  • Retrospective application involves applying a new accounting policy to transactions, other events and conditions as if that policy had always been applied in prior periods
  • The opening balance of each component of equity affected (usually retained profits) and other comparative amounts disclosed for prior periods must be presented on the basis of the new accounting policy
  • The required approach with comparative financial information is to apply the new accounting policy to any prior periods presented as far back as is practicable
• If it is impracticable to determine the cumulative effect of applying a new accounting policy at the beginning of the current period, then the new accounting policy is applied to the earliest prior period that is practicable
• When initial application of an Australian Accounting Standard has an effect on the current period or prior period, disclose:
  • The title of the Australian Accounting Standard
  • When applicable, that the accounting policy change is in accordance with its transitional provisions
  • The nature of the accounting policy change
  • When applicable, the transitional provisions and the effect on future periods
  • For the current period and each prior period presented, to the extent practicable, the adjusted amount for each financial statement line item affected and if AASB 133 Earnings per Share applies, basic and diluted earnings per share
  • The adjustment amount relating to periods before those presented, to the extent practicable
  • If retrospective application is impracticable for a prior period, the circumstances that led to that condition and a description of how and from when the accounting policy change has been applied
• When a voluntary accounting policy change has an effect on the current period or any prior period, disclose:
  • The nature of the accounting policy change
  • The reasons why applying the new policy provides reliable and more relevant information
  • For the current period and each prior period presented, to the extent practicable, the adjusted amount for each financial statement line item affected and if AASB 133 applies, basic and diluted earnings per share
  • The adjustment amount relating to periods before those presented, to the extent practicable
  • If retrospective application is impracticable for a prior period, the circumstances that led to that condition and a description of how and from when the accounting policy change has been applied
• When an entity has not applied a new Australian Accounting Standard that has been issued but not yet effective, disclose this fact and known or reasonably estimable information relevant to assessing the possible impact that application of the new standard will have on the entity’s financial report when initially applied

• To the extent that a change in an accounting estimate gives rise to changes in assets, liabilities or relates to an item of equity it must be recognised by adjusting the carrying amount of the related asset, liability or equity item in the period of the change
• The net effect of the change in accounting estimate must be recognised prospectively by including it in the profit or loss in:
  • The period of change, if the change affects only that period – e.g. a change in the estimate for the allowance for bad debts or provision for warranty; or
  • The period of the change and future periods, if the change affects both – e.g. a change in estimated useful life of a depreciable asset.
• Disclosure must be made of 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. If the estimation of the future effect is impracticable, then it is not required but that fact must be disclosed

• Material prior period errors must be corrected retrospectively in the first financial report authorised for issue after their discovery by:
  • Restating the comparative amounts for the prior periods presented in which the error occurred; or
  • Restating the opening balances of assets, liabilities and equity for the earliest prior period presented if the error occurred before the earliest prior period presented.
• A material prior period error must 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
• If it is impracticable to determine the cumulative effect of the error at the beginning of the current period, then the error is corrected prospectively from the earliest date that is practicable
• Disclosures in relation to prior period errors include:
  • The nature of the prior period error
  • For each prior period presented, to the extent practicable, the corrected amount for each financial statement line item affected and if AASB 133 applies, basic and diluted earnings per share
  • The amount of the correction at the start of the earliest prior period presented
  • If retrospective restatement is impracticable for a particular prior period, the circumstances that led to the existence of the condition and a description of how and from when the error has been corrected

• Sometimes it is impracticable to adjust comparative information for prior periods to achieve comparability with the current period. For example, data may not have been collected in the prior period and cannot be recreated
• The need for estimation does not by itself make a requirement impracticable. However, estimates must be made in relation to prior periods based on the circumstances that existed when the transaction, other event or condition occurred and hindsight must not be used
• For some types of estimates it is impracticable to distinguish this information, for example, an estimate of fair value not based on observable prices or observable inputs.

• Retrospective restatement of errors
• Prospective application of a change in accounting policy when retrospective application is not practicable