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IAS 8 - Changes Estimate, Policy and Errors

IAS 8 outlines the guidelines for changes in accounting policies, estimates, and errors in financial statements. Changes in accounting policies must be consistent and can only be made if required by IFRS or if they enhance the reliability of financial reporting. Accounting estimates are adjusted prospectively, while prior period errors must be corrected retrospectively in financial statements.

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32 views3 pages

IAS 8 - Changes Estimate, Policy and Errors

IAS 8 outlines the guidelines for changes in accounting policies, estimates, and errors in financial statements. Changes in accounting policies must be consistent and can only be made if required by IFRS or if they enhance the reliability of financial reporting. Accounting estimates are adjusted prospectively, while prior period errors must be corrected retrospectively in financial statements.

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CORNER KICK OFFICIAL
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IAS 8

Changes in Accounting Policies,


Changes in accounting estimates and
Error

Accounting policy:

• Accounting policies are the specific principles, base, conventions, rules and practices
adopted by an entity in preparing and presenting financial statements.

Selection and application of accounting policies:

• The accounting policy applied to the item shall be determined by the IFRS.

• In the absence of an IFRS, management shall use its judgment in applying an


accounting policy that results in information that is relevant and reliable.

• An entity shall select and apply its accounting policies consistently for similar
transactions.

An entity makes a change in accounting policy only if:

§ If the change is required by an IFRS Standard


§ If a new accounting policy results in a more reliable and relevant presentation of
events or transactions

• When a change in accounting policy is required by a new Standard, the Standard will often
include specific 'transitional provisions'.

• If transitional provision is not present applying to change required by standard, or the


entity changes the policy voluntarily then, it shall apply the change retrospectively. i.e.

• The entity shall adjust the opening balance of each affected component of equity for the
earliest prior period presented and the other comparative amounts disclosed for each prior
period presented as if the new accounting policy had always been applied.
Examples:
• Change in Inventory valuation ( FIFO -à AVCO)
• Direct --à Indirect exp ( dep -> Cos ---à administrative expenses
• Cost model to revaluation model ( change in policy but prospective adjustments)

Accounting estimates:

• An Accounting estimate is a method adopted by an entity to arrive at estimated amounts


for the financial statements.

Changes in accounting estimates:

The effect of a change in an accounting estimate shall be recognized prospectively by


including it in profit or loss in:
• The period of the change, if the change affects that period only; or
• The period of the change and future periods, if the change affects both

To the extent that a change in an accounting estimate gives rise to changes in assets and
liabilities, or relates to an item of equity, it shall be recognized by adjusting the carrying
amount of the related asset, liability or equity item in the period of the change.

Examples:
• Changes in depreciation method ( ST -à Reducing bal)
• Change in useful and SV
• Change in allowance/provision

Errors

• Prior period errors are omission from and misstatements in the entity’s financial
statements for one or more prior periods.

An entity shall correct material prior period errors retrospectively in the first set of financial
statements authorized for issue after their discovery by:

• restating the comparative amounts for the prior period(s) presented in which the error
occurred; or if the error occurred before the earliest prior period presented, restating the
opening balances of assets, liabilities and equity for the earliest prior period presented

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