IAS 8 — Change in Accounting policies

IAS 8 — Change in Accounting policies

Objective:

The objective of this Standard is to prescribe the criteria for selecting and changing accounting policies, the accounting treatment and disclosure of changes in accounting policies, accounting estimates and corrections of errors.

Definition:

Accounting policies

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

A change in accounting estimate

A change in accounting estimate is an adjustment of the carrying amount of an asset or liability, or related expense, resulting from reassessing the expected future benefits and obligations associated with that asset or liability.

Prior period errors

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 authorized for issue; and
• Could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements.

Changes in accounting policies:

A change in accounting policy is permitted only if

• Required by an IFRS or revised IAS
• If a change in accounting polity results in the financial statements providing reliable and more relevant financial information.
• 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.

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.

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.