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Section 10 of FRS102 requires changes in accounting policy resulting from a change in the requirements of an accounting standard, or from the adoption of a new accounting standard, to be accounted for in accordance with the transitional provisions of that standard. All other changes in accounting policy should be accounted for retrospectively.

»Ê¹ÚÌåÓýapp following example illustrates how a change of accounting policy from one valid policy to another is reported.

Example

A business made a reorganisation provision of £1million in its Year 1 accounts under a valid accounting policy for that accounting period. Under the same accounting policy it would have provided a further £500,000 in its Year 2 accounts.

By the time that the Year 2 accounts were being prepared a new financial reporting standard had come into force. Because the provision fails to satisfy the requirements of the standard, the business cannot now make the further provision of £500,000 in Year 2. It must also remove the £1million from its balance sheet.

»Ê¹ÚÌåÓýapp provision is removed by way of a ‘prior period adjustmentâ€� and the effect of this is to enhance shareholdersâ€� or ownersâ€� equity by increasing retained profits by the amount of the adjustment.

»Ê¹ÚÌåÓýapp profit and loss account for the previous year will be restated so as to provide accurate comparative figures.

»Ê¹ÚÌåÓýappre is no reopening of the Year 1 accounts because the accounting policy was valid at the time that the accounts were drawn up.

If the reorganisation provision of £1million had been allowed for tax purposes, the prior period adjustment is taxable, see BIM34070.