Explain the AASB 108 Requirements for the Selection and Application

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The Answer is AASB 108 requires the application of any accounting policy or policies specified in any relevant Australian accounting standard where appropriate (para.7).That is,for any particular transaction,other event or condition covered by an accounting standard,the requirements of that standard must be followed.In the absence of a specific accounting standard,management must use its judgment in developing and applying an accounting policy that results in information that is reliable and relevant to the economic decision making needs of users (para.10).The latter requires the financial report to: -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; -be neutral (that is,free from bias); -be prudent; and -be complete in all material respects.When it is necessary to make decisions on applicable accounting policies in the absence of a specific accounting standard,management is required to consider,first,the requirements and guidelines in other Australian accounting standards dealing with similar and related issues and,second,the definitions,recognition criteria and measurement concepts for assets,liabilities,income and expenses contained in the AASB Framework (para.11).The entity's management may also consider the most recent pronouncements of other accounting standard setting bodies that use a similar conceptual framework to develop accounting standards,other accounting literature and accepted industry practices,provided these do not conflict with the other Australian accounting standards dealing with similar or related issues or with the Framework (para.12).As a general rule,accounting policies must be applied consistently for similar transactions,other events and conditions (para.13).If an Australian standard requires or permits categorisation of items for which different policies may be applicable,an appropriate accounting policy must be selected and applied consistently to each category (para.13).For example,Chapter 6 highlighted the alternative cost and revaluation models pursuant to AASB 116: Property,Plant and Equipment.An entity is allowed,under appropriate circumstances,to apply the cost model to some classes of assets and the revaluation model to others.The effect of AASB 108 is to require the consistent application of the respective measurement rules for each class of asset.For comparability purposes,consistency in the selection and application of accounting policies is required.This is to satisfy the need of financial statement users to "be able to compare the financial statements of an entity over time to identify trends in its financial position,financial performance and cash flows" (para.15).However,changes of accounting policies are allowed where the change (a)is required by an Australian accounting standard or (b)results in the financial report providing reliable and more relevant information about the effects of transactions,other events or conditions on the entity's financial position,performance or cash flows (para.14).

Explain the AASB 108 Requirements for the Selection and Application

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