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Changes in Accounting Policies Users need to be able to compare the financial statements of an enterprise over a period of time to identify trends in its financial position, performance and cash flows. Therefore, the same accounting policies are normally adopted in each period. A change in accounting policy should be made only if required by statute, or by MASB, or if the change will result in a more appropriate presentation of events or transactions in the financial statements of the enterprise. A more appropriate presentation of events or transactions in the financial statements occurs when the new accounting policy results in more relevant or reliable information about the financial position, performance or cash flows of the enterprise. The following are not changes in accounting policies: the adoption of an accounting policy for events or transactions that differ in substance from previously occurring events or transactions; and the adoption of a new accounting policy for events or transactions which did not occur previously or that were immaterial.
The initial adoption of a policy to carry assets at revalued amounts is a change in accounting policy but it is dealt with as a revaluation in accordance with MASB 15, Property, Plant and Equipment, or MASB Approved Accounting Standard IAS 25, Accounting for Investments, as appropriate, rather than in accordance with this Standard. Therefore, paragraphs 51 to 59 of this Standard are not applicable to such changes in accounting policy. A change in accounting policy is applied retrospectively or prospectively in accordance with the requirements of this Standard. Retrospective application results in the new accounting policy being applied to events and transactions as if the new accounting policy had always been in use. Therefore, the accounting policy is applied to events and transactions from the date of origin of such items. Prospective application means that the new accounting policy is applied to the events and transactions occurring after the date of the change. No adjustments relating to prior periods are made either to the opening balance of retained earnings or in reporting the net profit or loss for the current period because existing balances are not recalculated. However, the new accounting policy is applied to existing balances as from the date of the change. For example, if a new standard on Borrowing Costs was issued an enterprise may decide to change its accounting policy for borrowing costs and capitalise those costs in conformity with the allowed alternative treatment in the new Standard. Under prospective application, the new policy only applies to borrowing costs that are incurred after the date of the change in accounting policy.
Adoption of a MASB Standard
A change in accounting policy which is made on the adoption of a MASB Standard should be accounted for in accordance with the specific transitional provisions, if any, in that MASB Standard. In the absence of any transitional provisions, the change in accounting policy should be applied in accordance with the benchmark treatment in paragraphs 51, 54 and 55 or the allowed alternative treatment in paragraphs 56, 58 and 59. The transitional provisions in a MASB Standard may require either a retrospective or a prospective application of a change in accounting policy. When an enterprise has not adopted a new MASB Standard which has been published by the Malaysian Accounting Standards Board but which has not yet come into effect, the enterprise is encouraged to disclose the nature of the future change in accounting policy and an estimate of the effect of the change on its net profit or loss and financial position.
Other Changes in Accounting Policies - Benchmark Treatment
A change in accounting policy should be applied retrospectively unless the amount of any resulting adjustment that relates to prior periods is not reasonably determinable. Any resulting adjustment should be reported as an adjustment to the opening balance of retained earnings. Comparative information should be restated unless it is impracticable to do so. The financial statements, including the comparative information for prior periods, are presented as if the new accounting policy had always been in use. Therefore, comparative information is restated in order to reflect the new accounting policy. The amount of the adjustment relating to periods prior to those included in the financial statements is adjusted against the opening balance of retained earnings of the earliest period presented. Any other information with respect to prior periods, such as historical summaries of financial data, is also restated. The restatement of comparative information does not necessarily give rise to the amendment of financial statements which have been approved by shareholders or registered or filed with regulatory authorities. However, specific legislations may require the amendment of such financial statements. The change in accounting policy should be applied prospectively when the amount of the adjustment to the opening balance of retained earnings required by paragraph 51 cannot he reasonably determined. When a change in accounting policy has a material effect on the current period or any prior period presented, or may have a material effect in subsequent periods, an enterprise should disclose the following: the reasons for the change; the amount of the adjustment for the current period and for each period presented; the amount of the adjustment relating to periods prior to those included in the comparative information; and the fact that comparative information has been restated or that it is impracticable to do so.
Other Changes in Accounting Policies - Allowed Alternative Treatment
A change in accounting policy should be applied retrospectively unless the amount of any resulting adjustment that relates to prior periods is not reasonably determinable. Any resulting adjustment should be included in the determination of the net profit or loss for the current period. Comparative information should be presented as reported in the financial statements of the prior period. Additional pro forma comparative information, prepared in accordance with paragraph 51, should be presented unless it is impracticable to do so. Adjustments resulting from a change in accounting policy are included in the determination of the net profit or loss for the period. However, additional comparative information is presented, often as separate columns, in order to show the net profit or loss and the financial position of the current period and any prior periods presented as if the new accounting policy had always been applied. The change in accounting policy should be applied prospectively when the amount to be included in net profit or loss for the current period required by paragraph 56 cannot be reasonably determined. When a change in accounting policy has a material effect on the current period or any prior period presented, or may have a material effect in subsequent periods, an enterprise should disclose the following: the reasons for the change; the amount of the adjustment recognised in net profit or loss in the current period; and the amount of the adjustment included in each period for which pro forma information is presented and the amount of the adjustment relating to periods prior to those included in the financial statements. If it is impracticable to present pro forma information, this fact should be disclosed.
Effective Date This Standard becomes operative for financial statements covering periods beginning on or after 1 July, 1999.
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