International Accounting Standard 8

Accounting Policies, Changes in Accounting Estimates and Errors

International Accounting Standard 8

Accounting Policies, Changes in
Accounting Estimates and Errors
Objective
1

The objective of this Standard is to prescribe the criteria for selecting and changing accounting
policies, together with the accounting treatment and disclosure of changes in accounting policies,
changes in accounting estimates and corrections of errors. The Standard is intended to enhance
the relevance and reliability of an entitys financial statements, and the comparability of those
financial statements over time and with the financial statements of other entities.

Disclosure requirements for accounting policies, except those for changes in accounting policies,
are set out in IAS1 Presentation of Financial Statements.

Scope
3

Th is Stan dard sh all be applied in selectin g an d applyin g accou n tin g policies, an d

accou n tin g for ch an ges in accou n tin g policies, ch an ges in accou n tin g estimates an d
correction s of prior period errors.

The tax effects of corrections of prior period errors and of retrospective adjustments made to apply
changes in accounting policies are accounted for and disclosed in accordance with IAS12 Income
Taxes.

Definitions
5

Th e followin g terms are u sed in th is Stan dard with th e mean in gs specified:

Accou n tin g policies are th e specific prin ciples, bases, con ven tion s, ru les an d
practices applied by an en tity in preparin g an d presen tin g fin an cial statemen ts.

A ch an ge in accou n tin g estimate is an adju stmen t of th e carryin g amou n t of an asset

or a liability, or th e amou n t of th e periodic con su mption of an asset, th at resu lts from
th e assessmen t of th e presen t statu s of, an d expected fu tu re ben efits an d
obligation s associated with , assets an d liabilities. Ch an ges in accou n tin g estimates
resu lt from n ew in formation or n ew developmen ts an d, accordin gly, are n ot
correction s of errors.
In tern ation al F in an cial Reportin g Stan dards (IF RSs) are Stan dards an d In terpretation s
issu ed by th e In tern ation al Accou n tin g Stan dards Board (IASB). Th ey comprise:
(a)
(b)

In tern ation al F in an cial Reportin g Stan dards;

In tern ation al Accou n tin g Stan dards;

(c)
(d)

IF RIC In terpretation s; an d
SIC In terpretation s. 1

Material Omission s or misstatemen ts of items are material if th ey cou ld, in dividu ally
or collectively, in flu en ce th e econ omic decision s th at u sers make on th e basis of th e
fin an cial statemen ts. Materiality depen ds on th e size an d n atu re of th e omission or
misstatemen t ju dged in th e su rrou n din g circu mstan ces. Th e size or n atu re of th e
item, or a combin ation of both , cou ld be th e determin in g factor.
Prior period errors are omission s from, an d misstatemen ts in , th e en titys fin an cial
statemen ts for on e or more prior periods arisin g from a failu re to u se, or misu se of,
reliable in formation th at:
(a)
(b)

was available wh en fin an cial statemen ts for th ose periods were au th orised for
issu e; an d
cou ld reason ably be expected to h ave been obtain ed an d taken in to accou n t in
th e preparation an d presen tation of th ose fin an cial statemen ts.

Su ch errors in clu de th e effects of math ematical mistakes, mistakes in applyin g

accou n tin g policies, oversigh ts or misin terpretation s of facts, an d frau d.
Retrospective application is applyin g a n ew accou n tin g policy to tran saction s, oth er
even ts an d con dition s as if th at policy h ad always been applied.
Retrospective restatemen t is correctin g th e recogn ition , measu remen t an d disclosu re
of amou n ts of elemen ts of fin an cial statemen ts as if a prior period error h ad n ever
occu rred.
Impracticable Applyin g a requ iremen t is impracticable wh en th e en tity can n ot apply it
after makin g every reason able effort to do so. F or a particu lar prior period, it is
impracticable to apply a ch an ge in an accou n tin g policy retrospectively or to make a
retrospective restatemen t to correct an error if:
(a)
(b)

th e effects of th e retrospective application or retrospective restatemen t are n ot

determin able;
th e retrospective application or retrospective restatemen t requ ires assu mption s

(c)

abou t wh at man agemen ts in ten t wou ld h ave been in th at period; or

th e retrospective application or retrospective restatemen t requ ires sign ifican t
estimates of amou n ts an d it is impossible to distin gu ish objectively
in formation abou t th ose estimates th at:
(i)
provides eviden ce of circu mstan ces th at existed on th e date(s) as at
wh ich th ose amou n ts are to be recogn ised, measu red or disclosed; an d
(ii)
wou ld h ave been available wh en th e fin an cial statemen ts for th at prior
period were au th orised for issu e from oth er in formation .

Prospective application of a ch an ge in accou n tin g policy an d of recogn isin g th e

effect of a ch an ge in an accou n tin g estimate, respectively, are:
(a)
(b)

applyin g th e n ew accou n tin g policy to tran saction s, oth er even ts an d

con dition s occu rrin g after th e date as at wh ich th e policy is ch an ged; an d
recogn isin g th e effect of th e ch an ge in th e accou n tin g estimate in th e cu rren t
an d fu tu re periods affected by th e ch an ge.

Assessing whether an omission or misstatement could influence economic decisions of users, and
so be material, requires consideration of the characteristics of those users. The Framework for the
Preparation and Presentation of Financial Statements states in paragraph 252 that users are
assumed to have a reasonable knowledge of business and economic activities and accounting and
a willingness to study the information with reasonable diligence. Therefore, the assessment needs
to take into account how users with such attributes could reasonably be expected to be influenced
in making economic decisions.

Accounting policies
Selection and application of accounting policies
7

Wh en an IF RS specifically applies to a tran saction , oth er even t or con dition , th e

accou n tin g policy or policies applied to th at item sh all be determin ed by applyin g th e
IF RS.

IFRSs set out accounting policies that the IASB has concluded result in financial statements
containing relevant and reliable information about the transactions, other events and conditions to
which they apply. Those policies need not be applied when the effect of applying them is
immaterial. However, it is inappropriate to make, or leave uncorrected, immaterial departures from
IFRSs to achieve a particular presentation of an entitys financial position, financial performance or
cash flows.

IFRSs are accompanied by guidance to assist entities in applying their requirements. All such
guidance states whether it is an integral part of IFRSs. Guidance that is an integral part of the IFRSs
is mandatory. Guidance that is not an integral part of the IFRSs does not contain requirements for
financial statements.

10

In th e absen ce of an IF RS th at specifically applies to a tran saction , oth er even t or

con dition , man agemen t sh all u se its ju dgemen t in developin g an d applyin g an

accou n tin g policy th at resu lts in in formation th at is:
(a)
relevan t to th e econ omic decision -makin g n eeds of u sers; an d

11

(b)

reliable, in th at th e fin an cial statemen ts:

(i)

represen t faith fu lly th e fin an cial position , fin an cial performan ce an d cash
flows of th e en tity;

(ii)

reflect th e econ omic su bstan ce of tran saction s, oth er even ts an d

con dition s, an d n ot merely th e legal form;

(iii)
(iv)

are n eu tral, ie free from bias;

are pru den t; an d

(v)

are complete in all material respects.

In makin g th e ju dgemen t described in paragraph 10, man agemen t sh all refer to, an d
con sider th e applicability of, th e followin g sou rces in descen din g order:
(a)
(b)

th e requ iremen ts in IF RSs dealin g with similar an d related issu es; an d

th e defin ition s, recogn ition criteria an d measu remen t con cepts for assets,
liabilities, in come an d expen ses in th e F ramework. 3

12

In makin g th e ju dgemen t described in paragraph 10, man agemen t may also con sider
th e most recen t pron ou n cemen ts of oth er stan dard-settin g bodies th at u se a similar
con ceptu al framework to develop accou n tin g stan dards, oth er accou n tin g literatu re
an d accepted in du stry practices, to th e exten t th at th ese do n ot con flict with th e
sou rces in paragraph 11.

Consistency of accounting policies

13

An en tity sh all select an d apply its accou n tin g policies con sisten tly for similar
tran saction s, oth er even ts an d con dition s, u n less an IF RS specifically requ ires or
permits categorisation of items for wh ich differen t policies may be appropriate. If an
IF RS requ ires or permits su ch categorisation , an appropriate accou n tin g policy sh all
be selected an d applied con sisten tly to each category.

Changes in accounting policies

14

An en tity sh all ch an ge an accou n tin g policy on ly if th e ch an ge:

(a)
(b)

is requ ired by an IF RS; or

resu lts in th e fin an cial statemen ts providin g reliable an d more relevan t
in formation abou t th e effects of tran saction s, oth er even ts or con dition s on th e
en titys fin an cial position , fin an cial performan ce or cash flows.

15

Users of financial statements need to be able to compare the financial statements of an entity over
time to identify trends in its financial position, financial performance and cash flows. Therefore, the
same accounting policies are applied within each period and from one period to the next unless a
change in accounting policy meets one of the criteria in paragraph14.

16

Th e followin g are n ot ch an ges in accou n tin g policies:

(a)
th e application of an accou n tin g policy for tran saction s, oth er even ts or

(b)

17

con dition s th at differ in su bstan ce from th ose previou sly occu rrin g; an d
th e application of a n ew accou n tin g policy for tran saction s, oth er even ts or
con dition s th at did n ot occu r previou sly or were immaterial.

Th e in itial application of a policy to revalu e assets in accordan ce with IAS16

Property, Plan t an d Equ ipmen t or IAS38 In tan gible Assets is a ch an ge in an
accou n tin g policy to be dealt with as a revalu ation in accordan ce with IAS16 or
IAS38, rath er th an in accordan ce with th is Stan dard.

18

Paragraphs 1931 do not apply to the change in accounting policy described in paragraph 17.

Applying changes in accounting policies

19

Su bject to paragraph 23:

(a)
an en tity sh all accou n t for a ch an ge in accou n tin g policy resu ltin g from th e
in itial application of an IF RS in accordan ce with th e specific tran sition al
provision s, if an y, in th at IF RS; an d
(b)

wh en an en tity ch an ges an accou n tin g policy u pon in itial application of an

IF RS th at does n ot in clu de specific tran sition al provision s applyin g to th at
ch an ge, or ch an ges an accou n tin g policy volu n tarily, it sh all apply th e ch an ge
retrospectively.

20

For the purpose of this Standard, early application of an IFRS is not a voluntary change in
accounting policy.

21

In the absence of an IFRS that specifically applies to a transaction, other event or condition,
management may, in accordance with paragraph 12, apply an accounting policy from the most
recent pronouncements of other standard-setting bodies that use a similar conceptual framework
to develop accounting standards. If,following an amendment of such a pronouncement, the entity
chooses to change an accounting policy, that change is accounted for and disclosed as a
voluntary change in accounting policy.
Retrospective application

22

Su bject to paragraph 23, wh en a ch an ge in accou n tin g policy is applied

retrospectively in accordan ce with paragraph 19(a) or (b), th e en tity sh all adju st th e
open in g balan ce of each affected compon en t of equ ity for th e earliest prior period
presen ted an d th e oth er comparative amou n ts disclosed for each prior period
presen ted as if th e n ew accou n tin g policy h ad always been applied.
Limitations on retrospective application

23

Wh en retrospective application is requ ired by paragraph 19(a) or (b), a ch an ge in

accou n tin g policy sh all be applied retrospectively except to th e exten t th at it is
impracticable to determin e eith er th e period-specific effects or th e cu mu lative effect
of th e ch an ge.

24

Wh en it is impracticable to determin e th e period-specific effects of ch an gin g an

accou n tin g policy on comparative in formation for on e or more prior periods

presen ted, th e en tity sh all apply th e n ew accou n tin g policy to th e carryin g amou n ts of
assets an d liabilities as at th e begin n in g of th e earliest period for wh ich retrospective
application is practicable, wh ich may be th e cu rren t period, an d sh all make a
correspon din g adju stmen t to th e open in g balan ce of each affected compon en t of
equ ity for th at period.
25

Wh en it is impracticable to determin e th e cu mu lative effect, at th e begin n in g of th e

cu rren t period, of applyin g a n ew accou n tin g policy to all prior periods, th een tity
sh all adju st th e comparative in formation to apply th e n ew accou n tin g policy
prospectively from th e earliest date practicable.

26

When an entity applies a new accounting policy retrospectively, it applies the new accounting policy
to comparative information for prior periods as far back as is practicable. Retrospective application
to a prior period is not practicable unless it is practicable to determine the cumulative effect on the
amounts in both the opening and closing statements of financial position for that period. The
amount of the resulting adjustment relating to periods before those presented in the financial
statements is made to the opening balance of each affected component of equity of the earliest
prior period presented. Usually the adjustment is made to retained earnings. However, the
adjustment may be made to another component of equity (for example, to comply with an IFRS).
Any other information about prior periods, such as historical summaries of financial data, is also
adjusted as far back as is practicable.

27

When it is impracticable for an entity to apply a new accounting policy retrospectively, because it
cannot determine the cumulative effect of applying the policy to all prior periods, the entity, in
accordance with paragraph 25, applies the new policy prospectively from the start of the earliest
period practicable. Ittherefore disregards the portion of the cumulative adjustment to assets,
liabilities and equity arising before that date. Changing an accounting policy is permitted even if it is
impracticable to apply the policy prospectively for any prior period. Paragraphs 5053 provide
guidance on when it is impracticable to apply a new accounting policy to one or more prior periods.

Disclosure
28

Wh en in itial application of an IF RS h as an effect on th e cu rren t period or an y prior

period, wou ld h ave su ch an effect except th at it is impracticable to determin e th e
amou n t of th e adju stmen t, or migh t h ave an effect on fu tu re periods, an en tity sh all
disclose:
(a)
(b)

th e title of th e IF RS;
wh en applicable, th at th e ch an ge in accou n tin g policy is made in accordan ce
with its tran sition al provision s;

(c)

th e n atu re of th e ch an ge in accou n tin g policy;

(d)

wh en applicable, a description of th e tran sition al provision s;

(e)

wh en applicable, th e tran sition al provision s th at migh t h ave an effect on fu tu re

periods;

(f)

for th e cu rren t period an d each prior period presen ted, to th e exten t

practicable, th e amou n t of th e adju stmen t:

(i)
(ii)

for each fin an cial statemen t lin e item affected; an d

if IAS33 Earn in gs per Sh are applies to th e en tity, for basic an d dilu ted
earn in gs per sh are;

(g)

th e amou n t of th e adju stmen t relatin g to periods before th ose presen ted,

toth e exten t practicable; an d

(h )

if retrospective application requ ired by paragraph 19(a) or (b) is impracticable

for a particu lar prior period, or for periods before th ose presen ted, th e
circu mstan ces th at led to th e existen ce of th at con dition an d a description of
h ow an d from wh en th e ch an ge in accou n tin g policy h as been applied.

F in an cial statemen ts of su bsequ en t periods n eed n ot repeat th ese disclosu res.

29

Wh en a volu n tary ch an ge in accou n tin g policy h as an effect on th e cu rren t period or

an y prior period, wou ld h ave an effect on th at period except th at it is impracticable to
determin e th e amou n t of th e adju stmen t, or migh t h ave an effect on fu tu re periods,
an en tity sh all disclose:
(a)

th e n atu re of th e ch an ge in accou n tin g policy;

(b)

th e reason s wh y applyin g th e n ew accou n tin g policy provides reliable an d more

relevan t in formation ;

(c)

for th e cu rren t period an d each prior period presen ted, to th e exten t

practicable, th e amou n t of th e adju stmen t:

(i)
(ii)

for each fin an cial statemen t lin e item affected; an d

if IAS33 applies to th e en tity, for basic an d dilu ted earn in gs per sh are;

(d)

th e amou n t of th e adju stmen t relatin g to periods before th ose presen ted, to

th e exten t practicable; an d

(e)

if retrospective application is impracticable for a particu lar prior period, or for

periods before th ose presen ted, th e circu mstan ces th at led to th e existen ce of
th at con dition an d a description of h ow an d from wh en th e ch an ge in
accou n tin g policy h as been applied.

F in an cial statemen ts of su bsequ en t periods n eed n ot repeat th ese disclosu res.

30

Wh en an en tity h as n ot applied a n ew IF RS th at h as been issu ed bu t is n ot yet

effective, th e en tity sh all disclose:
(a)

th is fact; an d

(b)

kn own or reason ably estimable in formation relevan t to assessin g th e possible

impact th at application of th e n ew IF RS will h ave on th e en titys fin an cial
statemen ts in th e period of in itial application .

31

In complying with paragraph 30, an entity considers disclosing:

(a)

the title of the new IFRS;

(b)
(c)

the nature of the impending change or changes in accounting policy;

the date by which application of the IFRS is required;

(d)

the date as at which it plans to apply the IFRS initially; and

(e)

either:

(i)

a discussion of the impact that initial application of the IFRS is expected to have on
the entitys financial statements; or

(ii)

if that impact is not known or reasonably estimable, a statement to that effect.

Changes in accounting estimates

32

As a result of the uncertainties inherent in business activities, many items in financial statements
cannot be measured with precision but can only be estimated. Estimation involves judgements
based on the latest available, reliable information. For example, estimates may be required of:

33

(a)

bad debts;

(b)

inventory obsolescence;

(c)

the fair value of financial assets or financial liabilities;

(d)

the useful lives of, or expected pattern of consumption of the future economic benefits
embodied in, depreciable assets; and

(e)

warranty obligations.

The use of reasonable estimates is an essential part of the preparation of financial statements and
does not undermine their reliability.

34

An estimate may need revision if changes occur in the circumstances on which the estimate was
based or as a result of new information or more experience. By its nature, the revision of an
estimate does not relate to prior periods and is not the correction of an error.

35

A change in the measurement basis applied is a change in an accounting policy, and is not a
change in an accounting estimate. When it is difficult to distinguish a change in an accounting
policy from a change in an accounting estimate, the change is treated as a change in an
accounting estimate.

36

Th e effect of a ch an ge in an accou n tin g estimate, oth er th an a ch an ge to wh ich

paragraph 37 applies, sh all be recogn ised prospectively by in clu din g it in profit or
loss in :

37

(a)

th e period of th e ch an ge, if th e ch an ge affects th at period on ly; or

(b)

th e period of th e ch an ge an d fu tu re periods, if th e ch an ge affects both .

To th e exten t th at a ch an ge in an accou n tin g estimate gives rise to ch an ges in assets

an d liabilities, or relates to an item of equ ity, it sh all be recogn ised by adju stin g th e
carryin g amou n t of th e related asset, liability or equ ity item in th e period of th e
ch an ge.

38

Prospective recognition of the effect of a change in an accounting estimate means that the change
is applied to transactions, other events and conditions from the date of the change in estimate. A
change in an accounting estimate may affect only the current periods profit or loss, or the profit or
loss of both the current period and future periods. For example, a change in the estimate of the
amount of bad debts affects only the current periods profit or loss and therefore is recognised in
the current period. However, a change in the estimated useful life of, or the expected pattern of
consumption of the future economic benefits embodied in, a depreciable asset affects depreciation
expense for the current period and for each future period during the assets remaining useful life. In

both cases, the effect of the change relating to the current period is recognised as income or
expense in the current period. The effect, if any, on future periods is recognised as income or
expense in those future periods.

Disclosure
39

An en tity sh all disclose th e n atu re an d amou n t of a ch an ge in an accou n tin g estimate

th at h as an effect in th e cu rren t period or is expected to h ave an effect in fu tu re
periods, except for th e disclosu re of th e effect on fu tu re periods wh en it is
impracticable to estimate th at effect.

40

If th e amou n t of th e effect in fu tu re periods is n ot disclosed becau se estimatin g it is

impracticable, an en tity sh all disclose th at fact.

Errors
41

Errors can arise in respect of the recognition, measurement, presentation or disclosure of elements
of financial statements. Financial statements do not comply with IFRSs if they contain either
material errors or immaterial errors made intentionally to achieve a particular presentation of an
entitys financial position, financial performance or cash flows. Potential current period errors
discovered in that period are corrected before the financial statements are authorised for issue.
However, material errors are sometimes not discovered until a subsequent period, and these prior
period errors are corrected in the comparative information presented in the financial statements for
that subsequent period (see paragraphs 4247).

42

Su bject to paragraph 43, an en tity sh all correct material prior period errors
retrospectively in th e first set of fin an cial statemen ts au th orised for issu e after th eir
discovery by:
(a)

restatin g th e comparative amou n ts for th e prior period(s) presen ted in wh ich

th e error occu rred; or

(b)

if th e error occu rred before th e earliest prior period presen ted, restatin g th e
open in g balan ces of assets, liabilities an d equ ity for th e earliest prior period
presen ted.

Limitations on retrospective restatement

43

A prior period error sh all be corrected by retrospective restatemen t except to th e

exten t th at it is impracticable to determin e eith er th e period-specific effects or th e
cu mu lative effect of th e error.

44

Wh en it is impracticable to determin e th e period-specific effects of an error on

comparative in formation for on e or more prior periods presen ted, th een tity sh all
restate th e open in g balan ces of assets, liabilities an d equ ity for th e earliest period for
wh ich retrospective restatemen t is practicable (wh ich may be th e cu rren t period).

45

Wh en it is impracticable to determin e th e cu mu lative effect, at th e begin n in g of th e

cu rren t period, of an error on all prior periods, th e en tity sh all restate th e comparative
in formation to correct th e error prospectively from th e earliest date practicable.
46

The correction of a prior period error is excluded from profit or loss for the period in which the error
is discovered. Any information presented about prior periods, including any historical summaries of
financial data, is restated as far back as is practicable.

47

When it is impracticable to determine the amount of an error (eg a mistake in applying an

accounting policy) for all prior periods, the entity, in accordance with paragraph 45, restates the
comparative information prospectively from the earliest date practicable. Ittherefore disregards the
portion of the cumulative restatement of assets, liabilities and equity arising before that date.
Paragraphs 5053 provide guidance on when it is impracticable to correct an error for one or more
prior periods.

48

Corrections of errors are distinguished from changes in accounting estimates. Accounting

estimates by their nature are approximations that may need revision as additional information
becomes known. For example, the gain or loss recognised on the outcome of a contingency is not
the correction of an error.

Disclosure of prior period errors

49

In applyin g paragraph 42, an en tity sh all disclose th e followin g:

(a)

th e n atu re of th e prior period error;

(b)

for each prior period presen ted, to th e exten t practicable, th e amou n t of th e

correction :
(i)
for each fin an cial statemen t lin e item affected; an d
(ii)

if IAS33 applies to th e en tity, for basic an d dilu ted earn in gs per sh are;