The FRS 8 prescribes the criteria for changing and selecting accounting policies in the accounting process and offers guidelines on how to treat disclosures of the variations in the accounting policies, estimates, and correction of errors. This financial reporting standard aims at improving the reliability and relevance of your business’s financial statements. It also aims at making it easier for you to compare the financial statements over time.
The FRS 8 requires you, as the business owner, to select and apply accounting policies consistently especially for similar transactions. However, in a case where the FRS permits you to classify some items in a different category that requires a different policy, then, you will choose another policy and apply it consistently. Keep in mind that the FRS 8 emphasizes consistency in accounting policies.
When it comes to changing an accounting policy in your business, remember that the FRS 8 recognizes a change in accounting policies only if:
The change is required by FRS
The change improves the reliability and relevance of the information given in the financial statements
Sometimes, it is hard for you to measure some of the items in your financial statements due to inherent business activities and uncertainties. In such a situation you should estimate the values. The estimation process involves judgment based on the recent available and reliable data. For example, you may need to estimate product obsolesce, bad debts, the fair value of financial liabilities or financial assets, and more.
According to FRS 8, use of reasonable estimate is important in the preparation of financial statements and does not compromise their relevance and reliability. You may need to revise the estimates you made if there is a new change in the estimated value. For example, if you estimated bad debts to $100 and later one part of the bad debts is cleared, then, you may need to revise the initial estimate.
Almost every business in Singapore experienced a change accounting estimates and errors (Also see Bookkeeping and Accounting System Weakness). However, very few businesses treat these changes in accordance with the FRS 8. Failure to adhere to the set FRS may land you, (business owner) in trouble and this may cause disruptions in your business operations. Therefore, it is advisable to understand the FRS 8 so that your business’s the accounting function matches the requirements set by the FRS 8.
If accounting is not your thing, then you can Contact Us anytime, and our accounting services will help you to adjust the accounting policies, accounting estimates and errors in your business financial statements. Rest assured that we will follow all the guidelines set by FRS 8.