censure prevents a practitioner from representing a client before the irs true or fa 613543

Scope of the principle of consistency

(a) Useful life of a wind-driven power station of entity E was initially estimated to be 16 years. When preparing the financial statements for a later period, it turns out that repairs are necessary more often than originally expected and that there are more down times than previously expected.

(b) Contingent liabilities are disclosed in the notes unless the possibility of an outflow of resources embodying economic benefits is remote (IAS 37.28 and 37.86). In its previous financial statements, E interpreted the term “remote” as a probability of 5%. E”s chief financial officer would like to interpret the term “remote” as a probability of 10% in E”s financial statements for the current period. He has no specific arguments to do so.

(c) E acquired a machine. Both the straight-line method and the diminishing balance method were considered acceptable as depreciation methods.E decided to apply the diminishing balance method in its previous financial statements. E”s chief financial officer would like to change to the straight-line method in the financial statements for the current period. The pattern in which the machine”s future economic benefits are expected to be consumed did not change. The change of the depreciation method was not planned from the beginning.

Required

Assess whether the principle of consistency applies in the above situations in E”s financial statements. If the principle does not apply, describe the accounting treatment in E”s financial statements.