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ASLB 3 Accounting Policies

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Accounting Standard for Local Bodies (ASLB) 3

Accounting Policies, Changes
in Accounting Estimates
and Errors
Contents
Paragaphs
OBJECTIVE 1–2
SCOPE 3–6
DEFINITIONS 7–8
Materiality 8
ACCOUNTING POLICIES 9–36
Selection and Application of
Accounting Policies 9–15
Consistency of Accounting Policies 16
Changes in Accounting Policies 17–36
Applying Changes in Accounting
Policies 24–32
Retrospective Application 27
Limitations on Retrospective Application 28–32
Disclosure 33–36
CHANGES IN ACCOUNTING ESTIMATES 37–45
Disclosure 44–45
ERRORS 46–54
Disclosure of Prior Period Errors 54
IMPRACTICABILITY IN RESPECT OF
RETROSPECTIVE APPLICATION 55–58
Compendium of ASLBs

APPENDICES:
Annexure 1: Comparison with corresponding IPSAS 3, ‘Accounting
Policies, Changes in Accounting
Estimates and Errors’
Annexure 2: Comparison with corresponding
existing AS 5, ‘Net Profit or Loss for the Period,
Prior Period Items and Changes in Accounting
Policies’

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Accounting Policies, Changes in Accounting Estimates and Errors

Accounting Standard for Local Bodies (ASLB) 3

Accounting Policies, Changes
in Accounting Estimates and Errors

(This Accounting Standard includes paragraphs set in bold italic type and
plain type, which have equal authority. Paragraphs in bold italic type indicate
the main principles. This Accounting Standard should be read in the context of
its objective and the Preface to the Accounting Standards for Local Bodies1)

The Accounting Standard for Local Bodies (ASLB) 3, ‘Accounting Policies,
Changes in Accounting Estimates and Errors’, issued by the Council of the
Institute of Chartered Accountants of India, will be recommendatory in nature
in the initial years for use by the local bodies. This Standard will be mandatory
for Local Bodies in a State from the date specified in this regard by the State
Government concerned2.

The following is the text of the Accounting Standard for Local Bodies.

Objective
1. The objective of this Standard is to prescribe the criteria for selecting
and changing accounting policies, together with the (a) accounting treatment
and disclosure of changes in accounting policies, (b) changes in accounting
estimates, and (c) the corrections of errors. This Standard is intended to enhance
the relevance and reliability of an entity’s financial statements, and the
comparability of those financial statements over time and with the financial
statements of other entities.

2. Disclosure requirements for accounting policies, except those for

1
Attention is specifically drawn to paragraph 4.2 of the ‘Preface to the Accounting Standards for Local
Bodies’,according to which Accounting Standards are intended to apply only to items which are
material.
2
Reference may be made to the paragraph 7.1 of the ‘Preface to the Accounting Standards for Local
Bodies’ providing the discussion on the compliance with the Accounting Standards for Local Bodies.

55
Compendium of ASLBs

changes in accounting policies, are set out in ASLB 1, ‘Presentation of Financial
Statements’.

Scope
3. This Standard should 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.

4. [Refer to Appendix 1]

5. This Standard applies to entities described as local bodies in the
Preface to the Accounting Standards for Local Bodies3.

6. [Refer to Appendix 1]

Definitions
7. The following terms are used in this Standard with the meanings
specified:

Accounting policies are the specific principles, bases, conventions,
rules, and practices applied by an entity in preparing and
presenting 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 result from new information or new developments and,
accordingly, are not correction of errors.

Impracticable Applying a requirement is impracticable when the
entity cannot apply it after making every reasonable effort to do
so. For a particular prior period, it is impracticable to apply a

3
Refer paragraph 1.3 of the ‘Preface to the Accounting Standards for Local Bodies’.

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Accounting Policies, Changes in Accounting Estimates and Errors

change in an accounting policy retrospectively if:

(a) The effects of the retrospective application is not
determinable;

(b) The retrospective application requires assumptions about
what management’s intent would have been in that period;
or

(c) The retrospective application requires significant estimates
of amounts and it is impossible to distinguish objectively
information about those estimates that:

(i) Provide evidence of circumstances that existed on the
date(s) as at which those amounts are to be recognised,
measured, or disclosed; and

(ii) Would have been available when the financial
statements for that prior period were authorised for
issue from other information.

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 a misuse of, reliable information that:

(a) was available when financial statements for those periods
were authorised for issue; and

(b) 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.

Prospective application of a change in accounting policy, and of
recognising the effect of the change in the accounting estimate,

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Compendium of ASLBs

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;

(b) recognising the effect of the change in the accounting
estimate in the current and future periods affected by the
change.

Retrospective application is applying a new accounting policy to
transactions, other events, and conditions as if that policy had
always been applied.

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

Materiality

8. Assessing whether an omission or misstatement could influence
decisions of users, and so be material, requires consideration of the
characteristics of those users. Users are assumed to have a reasonable
knowledge of the local bodies and economic activities and accounting and a
willingness to study the information with reasonable diligence. Therefore, the
assessment needs to take into account how users with such attributes could
reasonably be expected to be influenced in making and evaluating decisions.

Accounting Policies
Selection and Application of Accounting Policies

9. When an ASLB specifically applies to a transaction, other event
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Accounting Policies, Changes in Accounting Estimates and Errors

or condition, the accounting policy or policies applied to that item should
be determined by applying the Standard.

10. ASLBs set out accounting policies that result in financial statements
containing relevant and reliable information about the transactions, other events,
and conditions to which they apply. Those policies need not be applied when
the effect of applying them is immaterial. However, it is inappropriate to make,
or leave uncorrected, immaterial departures from ASLBs to achieve a particular
presentation of an entity’s financial position, financial performance, or cash
flows.

11. ASLBs are accompanied by guidance to assist entities in applying their
requirements. All such guidance states whether it is an integral part of ASLBs.
Guidance that is an integral part of ASLBs is mandatory. Guidance that is not
an integral part of ASLBs does not contain requirements for financial statements.

12. In the absence of an ASLB that specifically applies to a transaction,
other event, or condition, management should 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

(b) Reliable, in that the financial statements:

(i) Represent faithfully the financial position, financial
performance, and cash flows of the entity;

(ii) Reflect the economic substance of transactions, other
events, and conditions and not merely the legal form;

(iii) Are neutral, i.e., free from bias;

(iv) Are prudent; and

(v) Are complete in all material respects.

13. Paragraph 12 requires the development of accounting policies to ensure
that the financial statements provide information that meets a number of
qualitative characteristics.
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Compendium of ASLBs

14. In making the judgment, described in paragraph 12, management
should refer to, and consider the applicability of, the following sources
in descending order:

(a) The requirements in ASLBs dealing with similar and related
issues; and

(b) The definitions, recognition and measurement criteria for
assets, liabilities, revenue and expenses described in other
ASLBs.

15. In making the judgment described in paragraph 12, management
may also consider the following in descending order (a) the most recent
pronouncements of the Institute of Chartered Accountants of India,
e.g., Accounting Standards and Guidance Notes on Accounting. Such
pronouncements also include ‘Framework for the Preparation and
Presentation of Financial Statements’ (b) International Public Sector
Accounting Standards issued by International Public Sector Accounting
Standards Board, and (c) accepted accounting practices in Local Bodies
or in private sector, but only to the extent that these do not conflict with
the sources in paragraph 14.

Consistency of Accounting Policies

16. An entity should select and apply its accounting policies
consistently for similar transactions, other events, and conditions, unless
an ASLB specifically requires or permits categorisation of items for which
different policies may be appropriate. If an ASLB requires or permits
such categorisation, an appropriate accounting policy should be
selected and applied consistently to each category.

Changes in Accounting Policies

17. An entity should change an accounting policy only if the change:

(a) is required by an ASLB; or

(b) results in the financial statements providing reliable and

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Accounting Policies, Changes in Accounting Estimates and Errors

more relevant information about the effects of transactions,
other events, and conditions on the entity’s financial position,
financial performance, or cash flows; or

18. Users of financial statements need to be able to compare the financial
statements of an entity over time to identify trends in its financial position,
performance, and cash flows. Therefore, the same accounting policies are
applied within each period and from one period to the next, unless a change in
accounting policy meets one of the criteria in paragraph 17.

19. A change from one basis of accounting to another basis of
accounting is a change in accounting policy.

20. 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.

21. The following are not changes in accounting policies:

(a) The application of an accounting policy for transactions,
other events or conditions that differ in substance from
those previously occurring; and

(b) The application of a new accounting policy for transactions,
other events, or conditions that did not occur previously or
that were immaterial.

22. The initial application of a policy to revalue assets in accordance
with ASLB 17, ‘Property, Plant and Equipment’, is a change in accounting
policy to be dealt with as a revaluation in accordance with ASLB 17,
‘Property, Plant and Equipment’, rather than in accordance with this
Standard.

23. Paragraphs 24-36 do not apply to the change in accounting policy
described in paragraph 22.

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Compendium of ASLBs

Applying Changes in Accounting Policies

24. Subject to paragraph 28:

(a) An entity should account for a change in accounting policy
resulting from the initial application of an ASLB in
accordance with the specific transitional provisions, if any,
in that Standard; and

(b) When an entity changes an accounting policy upon initial
application of an ASLB that does not include specific
transitional provisions applying to that change, or change
an accounting policy voluntarily, it should apply the change
retrospectively.

25. For the purpose of this Standard, early application of an ASLB, where
permitted, is not a voluntary change in accounting policy.

26. In the absence of an ASLB that specifically applies to a transaction,
other event, or condition, management may, in accordance with paragraphs
14 and 15 apply an accounting policy from (a) the most recent pronouncements
of the Institute of Chartered Accountants of India, e.g., Accounting Standards
and Guidance Notes on Accounting. Such pronouncements also include
‘Framework for the Preparation and Presentation of Financial Statements’ and
(b) International Public Sector Accounting Standards issued by International
Public Sector Accounting Standards Board and (c) accepted accounting
practices in Local Bodies or in private sector, but only to the extent that these
do not conflict with the sources in paragraph 14.

Retrospective Application

27. Subject to paragraph 28, when a change in accounting policy is
applied retrospectively in accordance with paragraph 24 (b), deficiency
or surplus arising from retrospective application is recognised in the
statement of income and expenditure with corresponding adjustments,
if any, in the assets/liabilities in the year in which the accounting policy
is changed.

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Accounting Policies, Changes in Accounting Estimates and Errors

Limitations on Retrospective Application

28. When retrospective application is required by paragraph 24(a) or
(b), a change in accounting policy should be applied retrospectively,
except to the extent that it is impracticable to determine the period-
specific effects or cumulative effect of the change.

29. When it is impracticable to determine the period-specific effects
of changing an accounting policy, the entity should 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 should make a
corresponding recognition of charge or credit in the statement of income
and expenditure.

30. 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 entity should apply the new accounting policy
prospectively from the earliest date practicable.

31. [Refer to Appendix 1]

32. When it is impracticable for an entity to apply a new accounting policy
retrospectively, because it cannot determine the cumulative effect of applying
the policy to all prior periods, the entity, in accordance with paragraph 30,
applies the new accounting policy prospectively from the start of earliest period
practicable. It therefore disregards the portion of cumulative adjustment to
assets, liabilities, and equity arising from before that date. Changing an
accounting policy is permitted even if it is impracticable to apply the policy
prospectively for any prior period. Paragraphs 56-58 provide guidance when it
is impracticable to apply a new accounting policy to one or more prior periods.

Disclosure

33. When initial application of an ASLB (a) has an effect on the current
period or any prior period, (b) would have such an effect, except that it
is impracticable to determine the amount of the adjustment, or (c) might
have an effect on future periods, an entity should disclose:
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Compendium of ASLBs

(a) The title of the Standard;

(b) When applicable, that the change in accounting policy is
made in accordance with its transitional provisions;

(d) When applicable, a description of the transitional provisions;

(e) When applicable, the transitional provisions that might have
an effect on future periods;
(f) For the current period the amount of the adjustment for
each financial statement line item affected;

(g) The amount of the adjustment relating to periods before
those presented, to the extent practicable; and

(h) If retrospective application required by paragraph 24(a) or
(b) 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 change in
accounting policy has been applied.

Financial statements of subsequent periods need not repeat these
disclosures.

34. When a voluntary change in accounting policy (a) has an effect on
the current period or any prior period, (b) would have an effect on that
period, except that it is impracticable to determine the amount of the
adjustment, or (c) might have an effect on future periods, an entity should
disclose:

(i) The nature of the change in accounting policy;

(ii) The reasons why applying the new accounting policy
provides reliable and more relevant information;

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Accounting Policies, Changes in Accounting Estimates and Errors

(iii) For the current period, to the extent practicable, the amount
of the adjustment for each financial statement line item
affected;

(iv) The amount of the adjustment relating to periods before
those presented, to the extent practicable; and

(v) If retrospective application 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
change in accounting policy has been applied.

Financial statements of subsequent periods need not repeat these
disclosures.

35. [Refer to Appendix 1]

36. [Refer to Appendix 1]

Changes in Accounting Estimates
37. As a result of the uncertainties inherent in delivering services, conducting
trading, or other activities, many items in financial statements cannot be
measured with precision but can only be estimated. Estimation involves
judgments based on the latest available, reliable information. For example,
estimates may be required of:

(a) Tax revenue due to government;

(b) Bad debts arising from uncollected taxes;

(d) The fair value of financial assets or financial liabilities, where
applicable; and

(e) The useful lives of, or expected pattern of consumption of future
economic benefits or service potential embodied in depreciable
assets, or the percentage completion of road construction.
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Compendium of ASLBs

38. The use of reasonable estimates is an essential part of the preparation
of financial statements and does not undermine their reliability.

39. 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.

40. 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.

41. The effect of a change in an accounting estimate, other than a
change to which paragraph 42 applies, should be recognised
prospectively by including it in surplus or deficit in:

(a) The period of the change, if the change affects the period
only; or

(b) The period of the change and future periods, if the change
affects both.

42. To the extent that a change in an accounting estimate gives rise to
changes in assets and liabilities, or relates to an item of equity, it should
be recognised by adjusting the carrying amount of the related asset,
liability, or equity item in the period of change.

43. Prospective recognition of the effect of a change in an accounting
estimate means that the change is applied to transactions, other events, and
conditions from the date of the change in estimate. A change in an accounting
estimate may affect only the current period’s surplus or deficit, or the surplus or
deficit of both the current period and future periods. For example, a change in
the estimate of the amount of bad debts affects only the current period’s surplus
or deficit, and therefore is recognised in the current period. However, a change
in the estimated useful life of, or the expected pattern of consumption of
economic benefits or service potential embodied in, a depreciable asset affects
the depreciation expense for the current period and for each future period

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Accounting Policies, Changes in Accounting Estimates and Errors

during the asset’s remaining useful life. In both cases, the effect of the change
relating to the current period is recognised as revenue or expense in the current
period. The effect, if any, on future periods is recognised in future periods.

Disclosure

44. An entity should 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 on future periods, except for the disclosure
of the effect on future periods when it is impracticable to estimate that
effect.

45. If the amount of the effect in future periods is not disclosed
because estimating it is impracticable, the entity should disclose that
fact.

Errors
46. Errors can arise in respect of the recognition, measurement, presentation,
or disclosure of elements of financial statements. Financial statements do not
comply with ASLB if they contain either material errors, or immaterial errors
made intentionally to achieve a particular presentation of an entity’s financial
position, financial performance, or cash flows. Potential current period errors
discovered in that period are corrected before the financial statements are
authorised for issue. However, material errors are sometimes not discovered
until a subsequent period.

47. An entity should correct material prior period errors in the first
set of financial statements authorised for issue after their discovery by
recognising the same in the determination of surplus or deficit for the
current period.

48–52. [Refer to Appendix 1]

53. 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. For example, the
gain or loss recognised on the outcome of a contingency is not the correction
of an error.
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Compendium of ASLBs

Disclosure of Prior Period Errors

54. In applying paragraph 47, an entity should disclose the following:

(a) The nature of the prior period error;

(b) For the current period, to the extent practicable, the amount
of the correction for each financial statement line item
affected;

Financial statements of subsequent periods need not repeat these
disclosures beyond.

Impracticability in Respect of Retrospective
Application
55. In some circumstances, it is impracticable to apply retrospectively a
change in accounting policy. For example, data may not have been collected
in the prior period(s) in a way that allows either retrospective application of a
new accounting policy (including, for the purpose of paragraphs 56-58, its
prospective application to prior periods), and it may be impracticable to re-
create the information.

56. It is frequently necessary to make estimates in applying an accounting
policy to elements of financial statements recognised or disclosed in respect
of transactions, other events, or conditions. Estimation is inherently subjective,
and estimates may be developed after the reporting date. Developing estimates
is potentially more difficult when retrospectively applying an accounting policy
because of the longer period of time that might have passed since the affected
transaction, other event, or condition occurred. However, the objective of
estimates related to prior periods remains the same as for estimates made in
the current period, namely, for the estimate to reflect the circumstances that
existed when the transaction, other event, or condition occurred.

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Accounting Policies, Changes in Accounting Estimates and Errors

57. Therefore, retrospectively applying a new accounting policy requires
distinguishing information that:

(a) Provides evidence of circumstances that existed on the date(s) as
at which the transaction, other event, or condition occurred; and

(b) Would have been available when the financial statements for that
prior period were authorised for issue; from other information. For
some types of estimates (e.g., an estimate of fair value not based
on an observable price or observable inputs), it is impracticable
to distinguish these types of information. When retrospective
application 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 retrospectively.

58. 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 recognised, measured, or disclosed in a prior period. For example,
when an entity corrects a prior period error in calculating its liability for
employees’ accumulated sick leave in accordance with ASLB 25, ‘Employee
Benefits’4, it disregards information about an unusually severe influenza season
during the next period that becomes available after the financial statements for
the prior period were approved for issue. The fact that significant estimates are
frequently required does not prevent reliable adjustment or correction of the
error in the current period.

Effective Date
59. [Refer to Appendix 1]

59A. [Refer to Appendix 1]

60. [Refer to Appendix 1]

61. [Refer to Appendix 1]

4
The Accounting Standard for Local Bodies is under formulation.

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Compendium of ASLBs

Appendix 1
Note: This Appendix is not a part of the Accounting Standard for Local Bodies.
The purpose of this Appendix is only to bring out the major differences, if any,
between Accounting Standard for Local Bodies (ASLB) 3 and the corresponding
International Accounting Standard (IPSAS) 3, ‘Accounting Policies, Changes in
Accounting Estimates and Errors’.

Comparison with IPSAS 3, ‘Accounting policies,
changes in accounting estimates and errors’
1. Paragraph pertaining to exclusion of the tax effects of correction of prior
period errors have been deleted from the ASLB 3 as the same is not relevant
for Local Bodies in India. However, paragraph number 4 has been retained in
order to maintain consistency with IPSAS 3.

2. Paragraph 6 of IPSAS 3 which provides that Government Business
Enterprises should use IFRSs, has been deleted, as it is not relevant for the
ASLB 3, which is applicable to Local Bodies in India. However, paragraph
number has been retained in ASLB 3 in order to maintain consistency with
ASLB 3.

3. The concept of retrospective restatement in respect of applying an
accounting policy and correcting a prior period error has been removed in the
ASLB 3, as it would be difficult for the Local Bodies to apply since Local Bodies
in India are at very initial stage of implementing accrual accounting.
Consequential changes due to this change have also been made in the
standard.

4. As per ASLB 3 any change in accounting policy is applied retrospectively
and any adjustment resulting from such change is included in the statement of
Income and Expenditure in the year in which the accounting policy has been
changed whereas as per IPSAS 3 an entity adjust the opening balance of each
affected component of net asset/equity for the earliest period presented and
other comparative amounts disclosed for each prior period.

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5. ASLB 3 provides for an additional condition for change in accounting
policy by an entity, i.e., an entity can change its accounting policy if it is required
by a statute, which is not there in IPSAS 3.

6. As per IPSAS 3, an entity should correct the error by restating the
comparative amounts for prior period(s) presented in which the error occurred
and if the error occurred before the earliest prior period presented, restating
the opening balance of assets/equity for the earliest prior period presented
whereas according to ASLB 3, an error is corrected in the current year by
recognising the same in the determination of surplus or deficit for the current
period. Consequential changes have been made. However, paragraph numbers
have been retained in order to maintain consistency with IPSAS 3.

7. Paragraphs relating to effective date have been removed as ASLB 3
would become mandatory for Local Bodies in a state from the date specified
by the State Government concerned. Paragraph numbers have been retained
in order to maintain consistency with IPSAS 3.

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Compendium of ASLBs

Appendix 2
Note: This Appendix is not a part of the Accounting Standard for Local Bodies.
The purpose of this Appendix is only to bring out the major differences, if any,
between Accounting Standard for Local Bodies (ASLB) 3 and the existing
Accounting Standard (AS) 5, ‘Net Profit or Loss for the Period, Prior Period
Items and Changes in Accounting Policies’ issued by the Institute of Chartered
Accountants of India.

Comparison with existing AS 5, ‘Net Profit or Loss
for the Period, Prior Period Items and Changes in
Accounting Policies’
1. The objective of the existing AS 5 is to prescribe the classification and
disclosure of certain items in the statement of profit and loss for uniform
preparation and presentation of financial statements. The objective of ASLB 3
is to prescribe the criteria for selecting and changing accounting policies,
together with the accounting treatment and disclosure of changes in accounting
policies, changes in accounting estimates and corrections of errors.

2. The existing AS 5 restricts the definition of accounting policies to specific
accounting principles and the methods of applying those principles while ASLB
3 broadens the definition to include bases, conventions, rules and practices (in
addition to principles) applied by an entity in the preparation and presentation
of financial statements.

3. ASLB 3 specifically states that an entity should select and apply its
accounting policies consistently for similar transactions, other events and
conditions, unless an ASLB specifically requires or permits categorisation of
items for which different policies may be appropriate. Existing AS 5 does not
specifically requires accounting policies to be consistent for similar transactions,
other events and conditions.

4. Certain additional definitions such as ‘change in accounting estimate’,
‘impracticable’, ‘prospective application and ‘retrospective application’ etc. have
been provided in ASLB 3, whereas the same are not provided in the existing AS
5.

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Accounting Policies, Changes in Accounting Estimates and Errors

5. ASLB 3 requires that changes in accounting policies should be accounted
for with retrospective effect subject to limited exceptions, viz., where it is
impracticable to determine the period specific effects or the cumulative effect
of applying a new accounting policy. On the other hand, the existing AS 5 does
not specify how change in accounting policy should be accounted for.

6. The existing AS 5 defines prior period items as incomes or expenses
which arise in the current period as a result of errors or omissions in the
preparation of financial statements of one or more prior periods. ASLB 3 uses
the term prior period errors and relates it to errors or omissions arising from a
failure to use or misuse of reliable information (in addition to mathematical
mistakes, mistakes in application of accounting policies etc.) that was available
when the financial statements of the prior periods were approved for issuance
and could reasonably be expected to have been obtained and taken into
account in the preparation and presentation of those financial statements. ASLB
3 specifically states that errors include frauds, which is not covered in existing
AS 5.

7. Keeping in view that ASLB 1, ‘Presentation of Financial Statements’, is
silent about the presentation of any items of income or expense as extraordinary
items, this standard does not deal with the same, which at present is dealt with
by the existing AS 5.

8. Disclosure requirements given in ASLB 3 are more detailed as compared
to the disclosure requirements given in the existing AS 5.