Nasbo 3_ev_revised.doc

National Accounting Standard for Budget Organization № 3 “Accounting Policies, Changes in Accounting Estimates and Errors” Approved by the decree № İ-05
dated “13” January 2009
Ministry of Finance of the
Republic of Azerbaijan.
National Accounting Standard for Budget Organization № 3
“Accounting Policies, Changes in Accounting Estimates and Errors”
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General Provisions
Purpose of the standard
1.
This Standard has been prepared in accordance with the Accounting Law of the Azerbaijan Republic and is based on International Public Sector Accounting Standard № 3 – “Accounting Policies, Changes in Accounting Estimates and Errors”.
Objective
2.
The objective of this Standard is to set out the criteria to be used in selecting and changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates and the corrections of errors. Disclosure requirements for accounting policies, except those for changes in accounting policies, are set out in NASBO № 1 – Presentation of Financial Statements. This Standard shall be applied in selecting and applying accounting policies, and accounting for changes in accounting policies, changes in accounting estimates and corrections of prior period errors. The tax effects of corrections of prior period errors and of retrospective adjustments made to apply changes in accounting policies are not considered in this Standard as they are not relevant for many budget organizations. IAS № 12 – “Income Taxes” contains guidance on the treatment of tax effects of any corrections of prior period errors and of retrospective adjustments made to apply changes in accounting policies. This Standard applies to budget organizations, municipal organs and off-budget state funds. In the case of contradictions between effective normative-legal Acts on accounting regulation and this National Accounting Standard, the National Accounting Standard should be applied
Definitions
8.
The following terms are used in this NASBO with the meanings specified: Accounting policies are the specific principles, bases, conventions, rules and
practices applied by an enterprise in preparing and presenting its financial statements.

A change in accounting estimate is an adjustment of the carrying amount of an asset
or a liability, or the amount of the periodic consumption of an asset, that results from
the assessment of the present status of, and expected future benefits and obligations
associated with, assets and liabilities. Changes in accounting estimates are not
corrections of errors

Material Omissions or misstatements of items are material if they could, individually
or collectively, influence the decisions or assessments of users made on the basis of
the financial statements. Materiality depends on the nature or size of the omission or
misstatement judged in the surrounding circumstances. The nature or size of the item,
or a combination of both, could be the determining factor

Prior period errors are omissions from, and misstatements in, the entity’s financial
statements for one or more prior periods arising from a failure to use, or misuse of,
reliable information that:
(a)
Was available when financial statements for those periods were authorized for issue; and PDF created with pdfFactory trial version National Accounting Standard for Budget Organization № 3 “Accounting Policies, Changes in Accounting Estimates and Errors” Could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements. Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud Retrospective application is applying a new accounting policy to transactions, other
events and conditions as if that policy had always been applied

Retrospective restatement is correcting the recognition, measurement and disclosure
of amounts of elements of financial statements as if a prior period error had never
occurred.

Prospective application of a change in accounting policy and of recognizing the effect
of a change in an accounting estimate, respectively, are:
(a)
Applying the new accounting policy to transactions, other events and conditions occurring after the date as at which the policy is changed; and Recognizing the effect of the change in the accounting estimate in the current and future periods affected by the change Terms defined in other NASBOs are used in this Standard with the same meaning as in those other Standards, and are reproduced in the Glossary of Defined Terms published separately
Accounting Policies
Selection and Application of Accounting Policies
9.
When a particular NASBO specifically applies to a transaction, other event or condition, the accounting policy or policies applied to that item will be that contained in the relevant NASBO. Those policies need not be applied when the effect of applying them is immaterial. However, it will be wrong to make, or leave uncorrected, immaterial departures from NASBOs if the intention is to achieve a particular presentation of an enterprise’s financial position, financial performance or cash flows. In the absence of an NASBO that specifically applies to a transaction, other event or condition, management shall use its judgment in developing and applying an accounting policy that results in information that is: (a) Relevant to the decision-making needs of users; and Reliable, in that the financial statements: (i) Represent faithfully the financial position, financial performance and cash flows of the entity; Reflect the economic substance of transactions, other events and conditions and not merely the legal form; In making the judgment, described in paragraph 11, management shall refer to, and consider the applicability of, the following sources in descending order: (a) The requirements and guidance in NASBOs dealing with similar and related issues; and The definitions, recognition and measurement criteria for assets, liabilities, revenue and expenses described in other NASBOs. In making the judgment described in paragraph 11, management may also consider the most recent pronouncements of other standard-setting bodies and accepted public PDF created with pdfFactory trial version National Accounting Standard for Budget Organization № 3 “Accounting Policies, Changes in Accounting Estimates and Errors” or private sector practices to the extent, but only to the extent, that these do not conflict with the sources in paragraph 12.
Consistency of Accounting Policies
14.
A budget organization will select and apply its accounting policies consistently for similar transactions, other events and conditions, unless a NASBO specifically requires different policies to be applied to certain items or groups of items. If a NASBO requires the application of particular policies to certain items or groups of items, then that accounting policy will be applied consistently to those items or groups of items.
Changes in Accounting Policies
15.
A budget organization shall change an accounting policy only if the change: (a) Results in the financial statements providing reliable and more relevant information about the effects of transactions, other events and conditions on the entity’s financial position, financial performance or cash flows. A change from one basis of accounting to another basis of accounting is a change in accounting policy. A change in the accounting treatment, recognition or measurement of a transaction, event or condition within a basis of accounting is regarded as a change in accounting policy. The application of an accounting policy for transactions that differ in substance from current transactions, other events or conditions are not changes in accounting policies. The initial application of a policy to revalue assets in accordance with NASBO 17 Property, Plant and Equipment is a change in an accounting policy to be dealt with as a revaluation in accordance with NASBO 17. The initial application of a policy to revalue intangible assets is a change in accounting policy. Such a revaluation should be dealt with in accordance with IAS 38 – Intangible Assets. Paragraphs 22-35 do not apply to the change in accounting policy described in paragraphs 19 and 20.
Applying Changes in Accounting Policies
22.
a budget organization will account for a change in accounting policy resulting from the initial application of a NASBO in accordance with the specific transitional provisions, if any, in that NASBO; and when a budget organization changes an accounting policy on initial application of a NASBO that does not include specific transitional provisions applying to that change, or changes an accounting policy voluntarily, it will apply the change retrospectively. For the purpose of this NASBO, early application of a NASBO is not a voluntary change in accounting policy. If a NASBO does not exist that specifically applies to a transaction, other event or condition, management may, in accordance with Paragraph 13, apply an accounting policy from the most recent pronouncements of other standard-setting bodies that use a similar conceptual framework to develop accounting standards (such as the IASB). If, following an amendment of such a pronouncement, a budget organization chooses to PDF created with pdfFactory trial version National Accounting Standard for Budget Organization № 3 “Accounting Policies, Changes in Accounting Estimates and Errors” change an accounting policy, that change is accounted for and disclosed as a voluntary change in accounting policy. Retrospective Application
25.
Subject to paragraph 26, when a change in accounting policy is applied retrospectively in accordance with paragraph 22 (a) or (b), the budget organization shall adjust the opening balance of each affected component of net assets/equity for the earliest period presented and the other comparative amounts disclosed for each prior period presented as if the new accounting policy had always been applied.
Limitations on Retrospective Application
26.
When retrospective application is required by paragraph 22(a) or (b), a change in accounting policy shall be applied retrospectively except to the extent that it is impracticable to determine either the period specific effects or the cumulative effect of the change. When it is impracticable to determine the period specific effects of changing an accounting policy on comparative information for one or more prior periods presented, the budget organization shall apply the new accounting policy to the carrying amounts of assets and liabilities as at the beginning of the earliest period for which retrospective application is practicable, which may be the current period, and shall make a corresponding adjustment to the opening balance of each affected component of net assets/equity for that period. When it is impracticable to determine the cumulative effect, at the beginning of the current period, of applying a new accounting policy to all prior periods, the budget organization shall adjust the comparative information to apply the new accounting policy prospectively from the earliest date practicable When a budget organization applies a new accounting policy retrospectively, it applies the new accounting policy to comparative information for prior periods as far back as is practicable. Retrospective application to a prior period is not practicable unless it is practicable to determine the cumulative effect on the amounts in both the opening and closing statement of financial positions for that period. The amount of the resulting adjustment relating to periods before those presented in the financial statements is made to the opening balance of each affected component of net assets/equity of the earliest prior period presented. Usually the adjustment is made to accumulated surpluses or deficits. However, the adjustment may be made to another component of net assets/equity (for example, to comply with a NASBO). Any other information about prior periods, such as historical summaries of financial data, is also adjusted as far back as is practicable. When it is impracticable for an enterprise to apply a new accounting policy retrospectively, because it cannot determine the cumulative effect of applying the policy to all prior periods, the budget organization will apply the new policy prospectively from the start of the earliest period practicable. It therefore disregards the portion of the cumulative adjustment to assets, liabilities and equity arising before that date. Changing an accounting policy is permitted even if it is impracticable to apply the policy prospectively for any prior period. For a particular prior period, it is impracticable to apply a change in an accounting policy retrospectively or to make a retrospective restatement to correct an error if: (a) of the retrospective application or retrospective restatement are not determinable; assumptions about what management’s intent would have been in that period; or PDF created with pdfFactory trial version National Accounting Standard for Budget Organization № 3 “Accounting Policies, Changes in Accounting Estimates and Errors” The retrospective application or retrospective restatement requires significant estimates of amounts and it is impossible to distinguish objectively information about those estimates that: (i) Provides evidence of circumstances that existed on the date(s) as at which thos e amounts are to be recognized, measured or disclosed; and Would have been available when the financial statements for that prior period were authorized for issue from other information. Disclosure
32.
When the initial application of a NASBO has an effect on the current period or any prior period, or that it would have such an effect except that it is impracticable to determine the amount of the adjustment, or that it might have an effect on future periods, a budget organization must disclose: (a) when applicable, that the change in accounting policy is made in accordance with its transitional provisions; the nature of the change in accounting policy; when applicable, a description of the transitional provisions; when applicable, the transitional provisions that might have an effect on future periods; for the current period and each prior period presented, to the extent practicable, the amount of the adjustment for each financial statement line item affected; the amount of the adjustment relating to periods before those presented; and if retrospective application required by paragraph 22(a) or (b) is impracticable for a particular prior period, or for periods before those presented, the circumstances that led to the existence of that condition and a description of how and from when the change in accounting policy has been applied. Financial statements of subsequent periods need not repeat these disclosures. When a voluntary change in accounting policy has an effect on the current period or any prior period, would have an effect on that period except that it is impracticable to determine the amount of the adjustment, or might have an effect on future periods, a budget organization shall disclose: (a) The nature of the change in accounting policy; The reasons why applying the new accounting policy provides reliable and more relevant information; For the current period and each prior period presented, to the extent practicable, the amount of the adjustment for each financial statement line item affected; The amount of the adjustment relating to periods before those presented, to the extent practicable; and If retrospective application is impracticable for a particular prior period, or for periods before those presented, the circumstances that led to the existence of that condition and a description of how and from when the change in accounting policy has been applied. Financial statements of subsequent periods need not repeat these disclosures. When a budget organization has not applied a new NASBO that has been issued but is not yet effective, the entity shall disclose: (a) Known or reasonably estimable information relevant to assessing the possible impact that application of the new Standard will have on the entity’s financial statements in the period of initial application. In complying with paragraph 34, a budget organization considers disclosing: PDF created with pdfFactory trial version National Accounting Standard for Budget Organization № 3 “Accounting Policies, Changes in Accounting Estimates and Errors” The nature of the impending change or changes in accounting policy; The date by which application of the Standard is required; The date as at which it plans to apply the Standard initially; and A discussion of the impact that initial application of the Standard is expected to have on the entity’s financial statements; or If that impact is not known or reasonably estimable, a statement to that effect Changes in accounting estimates
36.
Where, as a result of the uncertainties inherent in delivering services, conducting trading or other activities, items in the financial statements cannot be measured with precision a budget organization must use an estimate. In making such estimates an budget organization shall use judgement based on the latest available, reliable information. The use of reasonable estimates is an essential part of the preparation of financial statements and does not undermine their reliability. An estimate may need revision if changes occur in the circumstances on which the estimate was based or as a result of new information or more experience. By its nature, the revision of an estimate does not relate to prior periods and is not the correction of an error. A change in the measurement basis applied is a change in an accounting policy, and is not a change in an accounting estimate. When it is difficult to distinguish a change in an accounting policy from a change in an accounting estimate, the change is treated as a change in an accounting estimate. The effect of a change in an accounting estimate, other than a change to which paragraph 41 applies, shall be recognized prospectively by including it in surplus or deficit in: (a) The period of the change, if the change affects the period only; or The period of the change and future periods, if the change affects both. To the extent that a change in an accounting estimate gives rise to changes in assets and liabilities, or relates to an item of net assets/equity, it shall be recognized by adjusting the carrying amount of the related asset, liability or net assets/equity item in the period of change. Where prospective recognition of the effect of a change in an accounting estimate affects both the current period’s surplus or deficit and that of future periods, the effect of the change relating to the current period is recognized as revenue or expense in the current period. The effect future periods is recognized in future periods.
Disclosure
43.
A budget organization will disclose 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, except when it is impracticable to estimate that effect. If the amount of the effect in future periods is not disclosed because estimating it is impracticable, a budget organization shall disclose that fact.
Errors
45.
Errors can arise in respect of the recognition, measurement, presentation or disclosure of elements of financial statements. Financial statements do not comply with NASBOs PDF created with pdfFactory trial version National Accounting Standard for Budget Organization № 3 “Accounting Policies, Changes in Accounting Estimates and Errors” if they contain either material errors or immaterial errors made intentionally to achieve a particular presentation of a budget organization’s financial position, financial performance or cash flows. Potential current period errors discovered in that period are corrected before the financial statements are authorized for issue. However, where material errors are not discovered until a subsequent period, these prior period errors are corrected in the comparative information presented in the financial statements for that subsequent period (see paragraphs 46 - 50). Subject to paragraph 47, a budget organization shall correct material prior period errors retrospectively in the first set of financial statements authorized for issue after their discovery by: (a) Restating the comparative amounts for prior period(s) presented in which the error occurred; or If the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and net assets/equity for the earliest prior period presented
Limitations on retrospective restatement
47.
A prior period error shall 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. When it is impracticable to determine the period specific effects of an error on comparative information for one or more prior periods presented, the budget organization shall restate the opening balances of assets, liabilities and net assets/equity for the earliest period for which retrospective restatement is practicable (which may be the current period) When it is impracticable to determine the cumulative effect, at the beginning of the current period, of an error on all prior periods, the budget organization shall restate the comparative information to correct the error prospectively from the earliest date practicable. The correction of a prior period error is excluded from surplus or deficit for the period in which the error is discovered. Any information presented about prior periods, including historical summaries of financial data, is also restated as far back as is practicable When it is impracticable to determine the amount of an error for all prior periods, the budget organization must restate the comparative information prospectively from the earliest date practicable Corrections of errors are distinguished from changes in accounting estimates. Accounting estimates by their nature are approximations that may need revision as additional information becomes known.
Disclosure of prior period errors
53.
In applying paragraph 46, a budget organization entity shall disclose the following: (a) For each prior period presented, to the extent practicable, the amount of the correction for each financial statement line item affected; The amount of the correction at the beginning of the earliest prior period presented; and If retrospective restatement is impracticable for a particular prior period, the circumstances that led to the existence of that condition and a description of how and from when the error has been corrected. Financial statements of subsequent periods need not repeat these disclosures. PDF created with pdfFactory trial version National Accounting Standard for Budget Organization № 3 “Accounting Policies, Changes in Accounting Estimates and Errors” Impracticability in respect of retrospective application and retrospective
restatement
54.
Retrospectively applying a new accounting policy or correcting a prior period error requires distinguishing information that: (a) provides evidence of circumstances that existed on the date when the transaction, other event or condition occurred, and would have been available when the financial statements for that prior period were authorised for issue from other information. For some types of estimates it is impracticable to distinguish these types of information. When retrospective application or retrospective restatement would require making a significant estimate for which it is impossible to distinguish these two types of information, it is impracticable to apply the new accounting policy or correct the prior period error retrospectively. Hindsight should not be used when applying a new accounting policy to, or correcting amounts for, a prior period, either in making assumptions about what management’s intentions would have been in a prior period or estimating the amounts recognized, measured or disclosed in a prior period. In addition, the fact that significant estimates are frequently required when amending comparative information presented for prior periods does not prevent reliable adjustment or correction of the comparative information.
Effective date
56.
The effective date of this standard is determined by an appropriate order of the Ministry of Finance of the Republic of Azerbaijan PDF created with pdfFactory trial version

Source: http://www.maliyye.gov.az/sites/default/files/store/6/NASBO%203_EV_revised.pdf