IAS 8 ACCOUNTING POLICIES,

CHANGES IN ACCOUNTING ESTIMATES AND ERRORS

DEFINITION

The objective of this Standard is to prescribe the criteria for selecting and changing accounting policies, the accounting treatment
and disclosure of changes in accounting policies, accounting estimates and corrections of errors.

ACCOUNTING POLICIES
Accounting Policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and
presenting financial statements.

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• Examples of accounting policies:

• Alternative presentation of government grant (IAS 20)

• FIFO or Weighted average method of inventory valuation (IAS 2)

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• Fair value model of cost model for investment properties (IAS 40)

Changes in accounting policy will be very rare and should be made only if

B
COMPULSORY CHANGE (The change is required by an
IFRS), or
u dy VOLUNTARY CHANGE (The change will result in a more
appropriate presentation of events or transactions in the
financial statements of the entity, providing more reliable
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and relevant information.

N.B. Revaluation of non-current assets should not be treated as changes in accounting policy
(I.e. no retrospective effect for revaluation)
FR

ACCOUNTING TREATMENT FOR CHANGES IN ACCOUNTING POLICIES

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• A change in accounting policy must be applied retrospectively

• Retrospective application means that the new accounting policy is applied to transactions and events as if it had always been
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in use. In other words, at the earliest date such transactions or events occurred, the policy is applied from that date.

• This involves restating opening balances of current year and comparative previous year
A
C
C
A

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 ACCOUNTING ESTIMATES
Estimates involve judgments based on the latest available, reliable information and are applied in determining the useful lives of
property, plant and equipment, provisions, fair values of financial assets and liabilities and actuarial assumptions relating to
defined benefit pension schemes.
Management applies judgement based on information available at the time

Examples of accounting estimates:

• Useful life or residual value of a non-current asset (IAS 16)

• Provision made for future loss or expenses (IAS 37)

A change in accounting estimate must be applied prospectively

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ACCOUNTING POLICIES VS ACCOUNTING ESTIMATES

B
ACCOUNTING POLICIES ACCOUNTING ESTIMATES

1. It is principles/Measurement basis.

2. Retrospective adjustments

3. FIFO or Weighted average method of inventory valuation

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Amounts/Patterns

Prospective adjustments
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Estimating the recoverability of receivables at the year end, i.e. bad
debts, Useful Life of Non-Current assets
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ERRORS:
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Errors discovered during a current period which relate to a prior period may arise through:

• Mathematical mistakes
• Mistakes in the application of accounting policies
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• Misinterpretation of facts
• Omissions
• Fraud
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• Prior period errors correct retrospectively.

IS THE PRIOR PERIOD IS MATERIAL?

A

YES MATERIAL NOT MATERIAL

C

Adjust retrospectively Not Mandatory to adjust retrospectively

C
A

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