In accordance with the "Basic Standards for Enterprise Accounting," the Ministry of Finance issued Accounting Standards for Business Enterprises No. 28 — Changes in Accounting Policies, Changes in Accounting Estimates and Corrections of Errors on 2/15/2006, effective as of 1/1/2007.
1. Change in Accounting Policies
Accounting policies are the principles, bases, and accounting methods that an enterprise adopts for accounting recognition, measurement, and reporting. An enterprise shall apply its accounting policies consistently from one period to the next and may not change them arbitrarily.
Conditions for allowing changes
- • Changes required by laws, administrative regulations, or national unified accounting standards
- • Changes in accounting policies provide more reliable and relevant financial information.
Retrospective adjustment method
Enterprises shall comply with relevant national accounting regulations when changing accounting policies in accordance with laws, administrative regulations, or unified national accounting standards. If a change in accounting policy provides more reliable and relevant financial information, it shall be accounted for using the retrospective adjustment method.
II. Change in Accounting Estimate
A change in accounting estimate occurs when the current status of assets and liabilities, or their expected economic benefits and obligations, changes, leading to an adjustment in the carrying amount of an asset or liability or in the periodic consumption amount of an asset.
prospective application
Changes in accounting estimates shall be accounted for using the prospective method. If a change affects only the current period, its impact shall be recognized in that period. If it affects both the current and future periods, its impact shall be recognized in the current period and subsequent periods.
III. Correction of Prior Period Errors
Significant prior-period errors
An entity shall correct material prior period errors using the retrospective restatement method, except when determining the cumulative effect of such errors is impracticable.
Immaterial prior period errors
Immaterial prior period errors may be corrected using the prospective method by adjusting relevant items in the current period.
4. Disclosure Requirements
Enterprises shall disclose the following information in the notes regarding changes in accounting policies, changes in accounting estimates, and corrections of prior period errors.
- • Nature, Content, and Reasons for Changes in Accounting Policies
- • Names of and adjustments to affected line items in the current period and each prior period presented in the financial statements due to changes in accounting policies
- • Nature and reasons for changes in accounting estimates, and their impact on the current period
- • Nature of prior period errors and the names of the affected line items in the previously issued financial statements, along with the amounts of corrections
Regulatory Document Attachment
Accounting Standards for Business Enterprises No. 28 — Changes in Accounting Policies, Changes in Accounting Estimates, and Corrections of Errors (PDF)