Interpretation and Application of UK GAAP: For Accounting Periods Commencing On or After 1 January 2015

Chapter 7Accounting Policies, Estimates and Errors

1. Introduction
2. Adopting Accounting Policies
3. Changing Accounting Policies
4. Development of an Accounting Policy in the Absence of Specific Direction in FRS 102
5. Accounting Estimates
6. Changes in Accounting Estimates
7. Correction of Errors
8. Disclosure Requirements

Introduction

The importance of appropriate accounting policies in the preparation of financial statements is essential. This is because they form the ‘backbone’ of financial statements and can heavily influence reported profits/losses and net assets. As a result, accounting policies have to be applicable to the entity's circumstances – particularly where FRS 102 offers a choice in accounting policy in certain areas (for example, the revaluation model or cost model for fixed assets). On transition to FRS 102, new estimates may be necessary and preparers should consider such issues as early as possible.

Section 10 Accounting Policies, Estimates and Errors gives the guidance reporting entities will need in order to appropriately select and apply accounting policies that will be used in the preparation of the financial statements. Section 10 also deals with aspects concerning a change in an accounting policy as well as outlining the requirements that need to be applied in the event that an error is discovered.

Changes in accounting policy are usually only undertaken when the change will result in the financial statements giving a clearer picture as to the state of the entity's ...