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IAS 8-Accounting Policies, Changes in Accounting Estimates and Errors

Objective

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 entity’s financial statements, and the comparability of those financial statements over time and with the financial statements of other entities.

Scope

This Standard shall be applied in selecting and applying accounting policies, and accounting for changes in accounting policies, changes in accounting estimates and corrections of prior period errors.

Definitions

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

Accounting estimates are monetary amounts in financial statements that are subject to measurement uncertainty.

International Financial Reporting Standards (IFRSs) are Standards and Interpretations issued by the International Accounting Standards Board (IASB). They comprise:

  1. International Financial Reporting Standards;
  2. International Accounting Standards;
  3. IFRIC Interpretations; and
  4. SIC Interpretations.

Material is defined in paragraph 7 of IAS 1 and is used in this Standard with the same meaning.

Prior period errors are omissions from, and misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:

  • was available when financial statements for those periods were authorised for issue; and
    • could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements.

Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud.

Retrospective application is applying a new accounting policy to transactions, other events and conditions as if that policy had always been applied.

Retrospective restatement is correcting the recognition, measurement and disclosure of amounts of elements of financial statements as if a prior period error had never occurred.

Impracticable Applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so. For a particular prior period, it is impracticable to apply a change in an accounting policy retrospectively or to make a retrospective restatement to correct an error if:

  1. the effects of the retrospective application or retrospective restatement are not determinable;
  2. the retrospective application or retrospective restatement requires assumptions about what management’s intent would have been in that period; or
  3. the retrospective application or retrospective restatement requires significant estimates of amounts and it is impossible to distinguish objectively information about those estimates that:
    • provides evidence of circumstances that existed on the date(s) as at which those amounts are to be recognised, measured or disclosed; and
    • would have been available when the financial statements for that prior period were authorised for issue from other information.

Prospective application of a change in accounting policy and of recognising the effect of a change in an accounting estimate, respectively, are:

  1. applying the new accounting policy to transactions, other events and conditions occurring after the date as at which the policy is changed; and
  2. recognising the effect of the change in the accounting estimate in the current and future periods affected by the change.

Disclosure

In applying paragraph 42, an entity shall disclose the following:

  1. the nature of the prior period error;
  2. for each prior period presented, to the extent practicable, the amount of the correction:
  • for each financial statement line item affected; and
  • if IAS 33 applies to the entity, for basic and diluted earnings per share

3. the amount of the correction at the beginning of the earliest prior period presented; and

4. if retrospective restatement is impracticable for a particular prior period, the circumstances that led to the existence of that condition and a description of how and from when the error has been corrected.

Financial statements of subsequent periods need not repeat these disclosures.