Objective: IAS 8 prescribes criteria for selecting and changing accounting policies, accounting for changes in estimates, and correcting errors to enhance comparability and reliability of financial statements.
- Applies to all entities preparing financial statements under IFRS
- Provides guidance on how to account for changes in accounting policies, estimates, and corrections of errors
- Aims to improve relevance and reliability of financial statements
Accounting Policies: Specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements.
- Selection Criteria: Apply IFRS-specific policy; if none exists, use judgment to develop policy resulting in relevant and reliable information
- Consistency: Apply accounting policies consistently for similar transactions
- Hierarchy: When no IFRS applies, management should use judgment considering:
- Requirements in similar standards
- Conceptual Framework definitions
- Recent pronouncements from other standard-setters
A change in accounting policy should be applied:
| Situation | Treatment |
|---|---|
| Required by Standard | Apply as specified in transition provisions |
| Voluntary Change | Apply retrospectively (adjust opening retained earnings) |
Retrospective Application: Apply new policy to all prior periods as if it had always been used, with adjustment to opening retained earnings.
Impracticability Exception: If retrospective application is impracticable, apply prospectively from earliest practicable date.
Accounting Estimate: An adjustment of the carrying amount of an asset or liability, or related expense, resulting from assessment of present status and expected future benefits and obligations.
- Result from new information or developments
- Not corrections of errors
- Apply prospectively in period of change and future periods
- Do not restate prior periods
- Useful lives of depreciable assets
- Bad debt provisions
- Warranty obligations
- Inventory obsolescence
- Fair values of financial assets/liabilities
Prior Period Errors: Omissions from, and misstatements in, financial statements for one or more prior periods arising from failure to use, or misuse of, reliable information.
- Errors can result from mathematical mistakes, oversights, misinterpretations, or fraud
- Correct retrospectively in first set of financial statements after discovery
- Restate comparative amounts for prior periods
- If impracticable to determine period-specific effects, restate opening balances
| Type of Change | Accounting Treatment | Financial Statement Impact |
|---|---|---|
| Change in Accounting Policy | Retrospective application | Adjust opening retained earnings; restate comparatives |
| Change in Accounting Estimate | Prospective application | Current and future periods only; no prior period restatement |
| Correction of Error | Retrospective restatement | Adjust opening retained earnings; restate comparatives |
- Changes in accounting policies:
- Nature of change and reasons
- Transition provisions applied
- Amount of adjustment for each financial statement line item
- Changes in accounting estimates:
- Nature and amount of change affecting current period
- Effect on future periods if practicable
- Correction of errors:
- Nature of error
- Amount of correction for each financial statement line item
- Amount of correction at beginning of earliest prior period presented