IAS 8 - Accounting Policies, Accounting Estimates and Errors

• Accounting Policies (APs)

  The specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements
• Accounting Policies

  • APs are normally developed by reference to the applicable IFRS Standard or Interpretation
  • APs should be applied consistently for similar transactions and same APs are usually adopted from period to period, to enhance comparability for users of financial statements
  • Changes in APs will therefore be rare
  • Only change in APs when is required by IFRS or to provide more reliable and more relevant information about the effects of transactions
  • A change in AP is applied retrospectively
• Retrospective application of AP change

  1. New policy is applied from the earliest date such transactions or events occurred

  2. Comparative period amounts are restated in the financial statements

  3. If periods before the earliest comparative period presented are affected, an adjustment is made to retained earnings brought forward at the start of the earliest comparative period
• If any change in the AP, IAS 1 requires a minimum of 3 statement of financial position
• Where it is impracticable to determine the effect in a specific period or on a cumulative basis, the policy should be applied retrospectively to the earliest period for which it is practicable to do so
• Change in accounting estimate

  An adjustment of the carrying amount of an asset or liability, or related expense, resulting from reassessing the expected future benefits and obligations associated with that asset or liability
• Examples of changes in accounting estimates

  • Allowance for receivables
  • Depreciation method
  • Useful lives of depreciable assets
  • Adjustment for obsolescence of inventory
  • Estimates of liability under standard warranty obligations
• Accounting estimates


  • Applied prospectively for the change in accounting estimate
  • The effects of a change in accounting estimate should be included in the statement of profit or loss in the period of the change and, if subsequent periods are affected, in those subsequent periods
• Prior Period Errors


  • Immaterial errors can be corrected through net profit or loss for the current period
  • Material prior period errors should be corrected retrospectively