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Accounting policies, changes in accounting estimate and errors (IAS 8)

VIVA Subject Guide
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IAS 8Accounting EstimatesAccounting PoliciesPrior Period Errors

1 Accounting policies

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

SelectionApply the standard thatspecifically deals withthe transactionApply a policy that givesrelevant and reliableinformationStandard of a similar itemIASB Framework definitions
Change in accountingpolicyNew IFRSFollow treatment givenin new IFRSApply a new policy that givesmore relevant and reliableinformationVoluntary changeRetrospective applicationAdjust b/f figuresRestate comparatives

2 Accounting estimates

Changes in accounting estimate are recognised prospectively:

  • Period of change

  • Period of change and future periods

Illustration 1 – Accounting Estimates

If a company decides to change its method of depreciation from straight line method to reducing balance method.

3 Prior period error

Accounting errors (omissions and misstatements) include:

  • Errors in applying accounting policies

  • Oversights

  • Fraud and the effects of fraud

Material errors are corrected retrospectively, the same as for a change in accounting policy.