TRAINING ON FULL

SET OF IFRSs.
IAS 8 Accounting Policies, Changes
in Accounting Estimates and Errors

Presented By:
Md. Emran Hoshen, ACA
Partner
Syful Shamsul Alam & Co.
Chartered Accountants

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TABLE OF CONTENT
1. PREFACE
2. OVERVIEW OF IAS 8
3. OBJECTIVE OF IAS 8
4. SCOPE OF IAS 8
5. ACCOUNTING POLICIES
6. CHANGES IN ACCOUNTING POLICIES
7. ACCOUNTING ESTIMATES
8. CHANGES IN ACCOUNTING ESTIMATES
9. ACCOUNTING POLICY AND ACCOUNTING ESTIMATE
10. ERRORS
11. DISCLOSURE FOR ERRORS
12. LIMITATION ON RETROSECTIVE RESTATEMENT
13. CASE STUDY

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PREFACE
IAS 8, or International Accounting
Standard 8, is a crucial guideline in the
world of financial reporting. It provides
clear directives on how to select and
apply accounting policies, handle
changes in accounting estimates, and
rectify errors in financial statements. By
ensuring consistency and transparency in
accounting practices, IAS 8 fosters trust
among stakeholders and facilitates
comparability across different entities'
financial reports. Its principles serve as a
foundation for accurate and reliable
financial information, guiding
organizations and professionals towards
best practices in accounting.

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OVERVIEW OF IAS 8
•Issued: in 1978; re-issued in 1993 and 2003, followed by amendments
•Effective date: 1 January 2005

•What it does:
• It prescribes the criteria for selecting and changing accounting
policy ;
• It explains a change in accounting estimate, how to recognize
the effect of such a change in the financial statements and
what to disclose;

• It provides the rules on how to correct errors made in the prior

period financial statements

• It discusses impracticability in respect of retrospective application

and retrospective restatement

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OBJECTIVE OF IAS 8
The Standard IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors tells us:
• How to select and apply our accounting policies;
• How to account for the changes in accounting policies;

• How to account for changes in accounting estimates; and

• How to correct errors made in the previous reporting periods.

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ACCOUNTING POLICY
• Accounting policies are anything from rules, guidelines,
conventions, principles and similar norms used by entities for the
preparation of the financial statements.

• IAS 8 specifically points out that the basis, especially measurement

basis is an accounting policy rather than accounting estimate.

• If you are deciding whether to use historical cost or fair value

measurement, you are basically selecting your accounting policy and
not assessing the accounting estimate.

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ACCOUNTING POLICY
How to select accounting policy?
The question here is whether there IS some IFRS or interpretation
IFRIC/SIC dealing with your specific transaction or situation, or NOT.

Simply apply it. For Management needs to

example, when you use judgement and
account for your develop its own policy,
new machines, then
IFRS but careful, the policy
YES NO
you obviously need Exist? needs to provide as
to apply IAS 16 reliable and relevant
Property, plant and information as
equipment. possible.

Visit the link for example: An article

about accounting for artwork under
IFRS, because it is not specifically
addressed by the standards and in
many cases you need to develop your
own accounting policy.
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ACCOUNTING POLICY
First, need to look at IFRS and IFRIC/SIC dealing with the similar or
related issues. For example, if you are selecting your accounting policy
01 for artwork, maybe IAS 16 Property, Plant and Equipment or IAS 40
Investment Property are standards dealing with similar issues.

02 Second, you need to apply concepts from the Conceptual

Framework for Financial Reporting.

How should you

Also, in order to help, you can look to other standard setting
develop your bodies and their own rules or standards for guidance. Many
companies do it regularly.
accounting 03
For example, IFRS do not contain any guidance related to
policy? accounting for gold as a storage of value, so they need to
develop their own accounting policy.

Let me also add that you must apply every accounting policy
consistently, to all transactions within the same category or of the
04 same type. In some cases, IFRS permit to categorize your transactions
– in this case, you can apply different accounting policies to different
categories.

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WHEN ACCOUNTING POLICY
NEEDS TO CHANGING
When it is required by another
IFRS. This will be the case when new
IFRS is issued and you HAVE TO
apply it mandatorily.

Sometimes, you WHEN

ACCOUNTING
When new
accounting policy
need to change POLICY NEEDS
CHANGING
provides better,
your accounting more reliable and
policy. Only at 2 relevant information.
In this case, you
circumstances it apply new
allowed. accounting policy
voluntarily.

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HOW TO CHANGE THE ACCOUNTING POLICY
If you apply new IFRS and
this IFRS contains some
transitional guidance, then
As per guidance you simply follow the rules
of new IFRS in that transition provisions.
How to New IFRS will tell you
Change exactly how.

The Retrospectively
However, if there’s no
transitional guidance, or you
Accounting change your accounting policy
voluntarily, then you should
Policy apply it retrospectively (there are
some exceptions).

“Retrospectively” means going back to the previous reporting

periods and restating every single component of equity as if the new
policy had always been in place. Be careful here because you need
to restate comparatives, too!

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DISCLOSURES RELATING TO
CHANGES IN ACCOUNTING POLICIE
Disclosures relating to changes in accounting policy caused by a new standard or interpretation include:
[IAS 8.28]
• the title of the standard or interpretation causing the change
• the nature of the change in accounting policy
• a description of the transitional provisions, including those that might have an effect on future period
• for the current period and each prior period presented, to the extent practicable, the amount of the
adjustment:
• for each financial statement line item affected, and
• for basic and diluted earnings per share (only if the entity is applying IAS 33)
• the amount of the adjustment relating to periods before those presented, to the extent practicable
• if retrospective application is impracticable, an explanation and description of how the change in
accounting policy was applied.

Disclosures relating to voluntary changes in accounting policy include: [IAS 8.29]

• the nature of the change in accounting policy
• the reasons why applying the new accounting policy provides reliable and more relevant information
• for the current period and each prior period presented, to the extent practicable, the amount of the adjustment:
• for each financial statement line item affected, and
• for basic and diluted earnings per share (only if the entity is applying IAS 33)
• the amount of the adjustment relating to periods before those presented, to the extent practicable
• if retrospective application is impracticable, an explanation and description of how the change in accounting
policy was applied.
Financial statements of subsequent periods need not repeat
these disclosures.
If an entity has not applied a new standard or interpretation that has been issued but is not yet effective,
the entity must disclose that fact and any and known or reasonably estimable information relevant to
assessing the possible impact that the new pronouncement will have in the year it is applied. [IAS 8.30]

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ACCOUNTING ESTIMATES
Accounting estimate are defined as “monetary amounts in the
financial statements that are subject to measurement uncertainty”.

Again a little warning:

• If these changes result from some new information or new trend, or
development, then they are changes in accounting estimates.
• If these changes result from some error, such as incorrect calculation
or wrong application of accounting policies – then they are NOT
changes in accounting estimates, but errors and they must be
accounted for as for errors.

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HOW CAN YOU ACCOUNT FOR
CHANGE IN ACCOUNTING ESTIMATE?
Unlike accounting for change in accounting policy, we need to
change our accounting estimates prospectively, either:

• In the current reporting period, in form of so-called„ catch-up

adjustment“;
• In both the current and future reporting periods, if the
change affects both (for example, change in useful lives
affects depreciation charges in both the current and the future
reporting periods).

“Prospectively” means that you do NOT restate comparatives and

equity. You do NOT touch financial statements in the previous
reporting periods; you simply adjust calculations in the current and
future reporting periods.

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DISCLOSURES RELATING TO CHANGES
IN ACCOUNTING ESTIMATES
• the nature and amount of a change in an accounting estimate that has
an effect in the current period or is expected to have an effect in future
periods

• if the amount of the effect in future periods is not disclosed because

estimating it is impracticable, an entity shall disclose that fact. [IAS
8.39-40]

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DIFFERENCE BETWEEN
ACCOUNTING POLICY AND
ACCOUNTING ESTIMATE
• Sometimes, it’s very difficult to assess whether we deal with an accounting policy or an
accounting estimate.
• Just be very careful and realize whether it’s about principle or about calculation. If you do
it wrong, well, your accounts can go wrong, too!
• The standard IAS 8 says that if you cannot distinguish if your change is a change in
accounting policy or a change in accounting estimate, then treat it as a change in accounting
estimate.

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ACCOUNTING ERRORS
• Prior-period errors are some omissions from (that’s when
you forget something) or misstatements in the financial
statements as a result of ignoring or misusing the
information that was available or could be reasonably
obtained when preparing these financial statements.

• It does not really matter why the error happened – whether it was
intentional (fraud) or unintentional, you still need to correct it if it is
material.

The question is:

Is the error material?

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ACCOUNTING ERRORS
However, if it is impracticable to
determine the period-specific
effects of an error on comparative
information for one or more prior
periods presented, the entity must
restate the opening balances of
assets, liabilities, and equity for the
earliest period for which
retrospective restatement is
practicable (which may be the current
period). [IAS 8.44]

Further, if it is impracticable to determine the cumulative effect,

at the beginning of the current period, of an error on all prior periods,
the entity must restate the comparative information to correct the
error prospectively from the earliest date practicable. [IAS 8.45]

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DISCLOSURES RELATING TO PRIOR
PERIOD ERRORS
Disclosures relating to prior period errors include: [IAS 8.49]
• the nature of the prior period error
• for each prior period presented, to the extent practicable, the
amount of the correction:
• for each financial statement line item affected, and
• for basic and diluted earnings per share (only if the entity
is applying IAS 33)
• the amount of the correction at the beginning of the earliest
prior period presented
• if retrospective restatement is impracticable, an explanation
and description of how the error has been corrected.

Financial statements of subsequent periods need not repeat these disclosures.

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SELF STUDY
• Our machines are fully depreciated, but we still use them! What
shall we do?
https://www.cpdbox.com/machines-fully-
depreciated-still-in-use/

• Changing depreciation during the reporting period?

https://www.cpdbox.com/question/ifrs-
change-depreciation-during-the-reporting-
period/

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