Web Summaries
IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors
Introduction
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors was issued
in December 2003 and is applicable for annual periods beginning on or after 1
January 2005.
IAS 8 prescribes the criteria for selecting and applying accounting policies, and
accounting for changes in accounting policies, changes in accounting estimates and
corrections of prior period errors.
Summary of IAS 8
When a Standard or an Interpretation (hereafter “IFRS”) specifically applies to a
transaction, event or condition, the accounting policy applied to that item is
determined by applying the IFRS and considering any relevant Implementation
Guidance for the IFRS.
Accounting policies need not be applied when the effect of applying them is
immaterial, as defined in IAS 1 Presentation of Financial Statement.
In the absence of an IFRS that specifically applies to a transaction, event or condition,
management uses its judgement in selecting and applying an accounting policy that
results in relevant and reliable financial information. IAS 8 specifies the following
hierarchy of guidance which management uses when selecting accounting policies in
such circumstances:
• requirements of Standards and Interpretations dealing with similar matters;
• the definitions, recognition criteria and measurement concepts for assets,
liabilities, income and expenses in the Framework for the Preparation and
Presentation of Financial Statements;
• the most recent pronouncements of other standard-setting bodies that use a similar
conceptual framework, other accounting literature and accepted industry practices,
to the extent that these do not conflict with IFRSs and the Framework. .
An entity applies its accounting policies consistently for similar transactions, other
events and conditions, unless an IFRS specifically requires or permits categorisation
of items for which different policies may be appropriate.
An entity changes an accounting policy only if the change is required by an IFRS, or
results in the financial statements providing more relevant and reliable information
about the entity’s financial position, financial performance or cash flows. A change
in accounting policy, resulting from the initial application of an IFRS, is accounted
for in accordance with any specific transitional provisions of that IFRS. Otherwise a
change in accounting policy is applied retrospectively to all periods presented in the
financial statements as if the new accounting policy has always been applied.
The effect of a change in an accounting estimate is recognised prospectively in profit
or loss in the period of the change, and also in profit or loss in future periods if the
change affects both periods. Any corresponding changes in assets and liabilities, or to
an item of equity, are recognised by adjusting the carrying amount of the asset,
liability or equity item in the period of the change.
Web Summaries
IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors
A material prior period error is corrected retrospectively in the first set of financial
statements authorised for issue after its discovery. The comparative amounts for the
prior period(s) presented in which the error occurred are restated; or if the error
occurred before the earliest period presented, the opening balances of assets, liabilities
and equity for the earliest prior period presented are restated.
IAS 8 specifies the accounting treatment when it is impracticable to account for a
change in accounting policy or a correction of a prior period error using retrospective
restatement in accordance with the Standard.
IAS 8 also specifies disclosures about accounting policies, changes in accounting
estimates and errors.
