ASBE No. 28
Active
Accounting Policies, Changes in Accounting Estimates and Correction of Errors
Accounting Policies, Changes in Accounting Estimates and Correction of Errors is part of the Chinese Accounting Standards for Business Enterprises (ASBE).
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Conceptual Framework Linkage
Three genuinely different treatments for three genuinely different situations
ASBE No. 28 governs HOW an enterprise ACCOUNTS for CHANGES in ACCOUNTING policies, CHANGES in ACCOUNTING estimates, and CORRECTIONS of PRIOR period ERRORS – THREE genuinely DIFFERENT situations, EACH requiring a DIFFERENT accounting TREATMENT, CLOSELY converged with IAS 8 internationally.
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Scope – Three Distinct Categories of Change
Policy changes, estimate changes, and error corrections
CategoryTreatment
Accounting policy changeRETROSPECTIVE application (RESTATING comparatives), UNLESS a NEW standard's OWN transition provisions SPECIFY otherwise
Accounting estimate changePROSPECTIVE application (NO restatement of PRIOR periods)
Prior period error correctionRETROSPECTIVE restatement, for MATERIAL errors
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Accounting Policy Changes
Required by a new standard, or voluntary for more reliable information
A CHANGE in ACCOUNTING policy is PERMITTED WHERE REQUIRED by a NEW or REVISED accounting STANDARD, or WHERE the CHANGE will RESULT in the financial STATEMENTS providing MORE RELIABLE and MORE RELEVANT information ABOUT the effects of TRANSACTIONS – a VOLUNTARY change is APPLIED retrospectively, AS IF the NEW policy had ALWAYS been APPLIED.
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Changes in Accounting Estimates – Prospective Application
Adjusting future periods only, with no restatement
A CHANGE in an ACCOUNTING estimate (e.g. a REVISED useful LIFE for a FIXED asset, or a REVISED bad DEBT allowance RATE) is APPLIED PROSPECTIVELY – AFFECTING the CURRENT period and FUTURE periods ONLY, WITH NO restatement of PRIOR periods, since the ORIGINAL estimate was REASONABLE based on the INFORMATION available AT the time.
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Distinguishing a Policy Change From an Estimate Change
A key judgement with materially different consequences
WHERE it is DIFFICULT to DISTINGUISH a CHANGE in ACCOUNTING policy FROM a CHANGE in ACCOUNTING estimate, the CHANGE is TREATED as a CHANGE in ESTIMATE – a PRACTICAL default REFLECTING that MOST such AMBIGUOUS cases GENUINELY involve a REFINEMENT of JUDGEMENT RATHER than a WHOLESALE change in the UNDERLYING accounting PRINCIPLE.
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Correction of Prior Period Errors – Retrospective Restatement
Restating comparatives as if the error never occurred
MATERIAL errors RELATING to PRIOR periods are CORRECTED retrospectively – RESTATING the COMPARATIVE amounts PRESENTED for the PRIOR period(s) in WHICH the ERROR occurred, AS IF the ERROR had NEVER been MADE.
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Materiality of an Error
Only material errors require retrospective correction
ONLY MATERIAL errors REQUIRE retrospective RESTATEMENT – an ERROR is MATERIAL if it COULD reasonably be EXPECTED to INFLUENCE the ECONOMIC decisions of USERS relying on the FINANCIAL statements, ASSESSED both INDIVIDUALLY and IN aggregate WITH other errors.
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Worked Example – a Voluntary Accounting Policy Change
Restating comparatives for improved reliability
Example: Changing an inventory cost formula
A company changes its inventory cost formula from FIFO to weighted average, determining this provides more reliable and relevant information about its inventory costs given a change in its purchasing pattern.
The company APPLIES the NEW weighted AVERAGE formula RETROSPECTIVELY, RESTATING comparative FIGURES as IF weighted AVERAGE had ALWAYS been USED, DISCLOSING the NATURE and REASON for the CHANGE.
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Worked Example – Correcting a Material Prior Period Error
Restating a comparative period to remove the error
Example: A previously omitted liability
A company discovers that a material RMB 10,000,000 liability was mistakenly omitted from the prior year's financial statements due to a clerical error.
The company RESTATES the PRIOR year'S comparative FIGURES to INCLUDE the RMB 10,000,000 liability (and its ASSOCIATED expense), CORRECTING the error RETROSPECTIVELY, WITH appropriate DISCLOSURE of the NATURE of the error and the AMOUNT of the CORRECTION.
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Disclosure Requirements
What ASBE No. 28 requires
Nature and reason for any accounting policy change, and its financial effectNature and amount of any change in accounting estimate affecting the current or future periodsNature of any prior period error corrected, and the amount of the correction for each period presented
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Critical Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Distinguishing a genuine accounting policy change from a change in estimateAssessing whether an identified error is material
SIGNIFICANT ESTIMATES
Quantifying the financial effect of a policy change or error correction on prior periods
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Relationship to IAS 8
Comparison – ASBE 28 vs IAS 8
FeatureASBE 28IAS 8
Policy changesRetrospectiveRetrospective – converged
Estimate changesProspectiveProspective – converged
Error correctionsRetrospective restatementRetrospective restatement – converged
A GENUINELY thoroughly CONVERGED standard, with NO meaningful SUBSTANTIVE divergence to REPORT.
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Statement Mapping
Where every category of change lands
EventStatement(s) affectedNotes
Policy change / error correctionALL comparative statementsRetrospectively restated
Estimate changeCurrent and future periods onlyNo restatement of prior periods
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Related Standards
Cross-reference map
StandardConnection
ASBE No. 30Presentation of Financial Statements – governs the overall comparative presentation this Standard's restatement provisions affect
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Quick-Reference Glossary
Retrospective application
Applying a new accounting policy or correcting an error as if it had always applied, restating comparative periods accordingly.
Prospective application
Applying a change only to the current and future periods, without restating prior periods.
Financial statement key (Chinese GAAP / ASBE terminology)
BS Balance Sheet (资产负债表)
IS Income Statement (利润表)
SCOE Statement of Changes in Owners' Equity (所有者权益变动表)
CFS Cash Flow Statement (现金流量表)
History & Development
2006-02
ASBE No. 28 Accounting Policies, Changes in Accounting Estimates and Correction of Errors issued
Operative for periods beginning on or after 1 February 2007