IAS 8 – Accounting policies, changes in accounting estimates and errors

Accounting policies, changes in accounting estimates and errors (IAS 8)
Last Updated: October 30, 2013

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Selection and Application of Accounting Policies

  • If an IFRS specifically applies to a transaction the specific IFRS must be applied.
  • In the absence of specific guidance, management must use judgment which results in:
    • Relevant to the economic decision-making needs of users; and
    • Reliable, in that the financial statements:
      • Represent faithfully the financial position, performance and cash flows;
      • Reflect the economic substance of transactions and not just legal form;
      • Are free from bias;
      • Are prudent; and
      • Are complete in all material respects.

In the above judgments, management should refer to the following sources:

  1. IFRSs dealing with similar and related issues
  2. The definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Framework.
  3. Could also consider the most recent pronouncements of other standard-setting bodies which use a similar conceptual framework or other accounting literature/accepted industry practices.

Other Notes

  • Entities should be consistent in their application of accounting policies for similar transactions.


Changes in Accounting Policies

Change in accounting policies is only permitted if:

  • Required by an IFRS; or
  • Results in equally reliable statements and more relevant information.

Changes in accounting policies must be applied retrospectively unless specific guidance is provided. The opening balance of each affected component of equity for the earliest prior period presented and other comparative amounts should be adjusted as if the policy was always in place.

Disclosures highlights: should include the nature of the change, reason for the change and amounts of the adjustment for each line item affected.

Changes in Accounting Estimates

The nature of accounting will result in occasional changes to accounting estimates, this is not the same as changes in accounting policies. When in doubt, IFRS requires you to assume it is a change in accounting estimate.

  • The effects of a change in 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.
    • If the change in accounting estimate increases or decreases assets and liabilities, or equity, it shall be recognised by adjusting the carrying amount of the related asset, liability or equity item in the period of the change.



On occasion, there may be errors discovered in the financial statements from prior periods. Errors mean that the financial statements do not comply with IFRSs, contain either material errors or immaterial errors made intentionally. This differs from a change in estimates.

Errors are required to be corrected retrospectively in the first set of financial statements authorised for issue after their error discovery by:

  • Restating the comparative amounts of the prior period(s) in which the error exists; or
  • If the error occurred prior to the earliest prior period presented, a restatement of the opening balances of assets, liabilities and equity for the earliest prior period presented.

Disclosure highlights: should include the nature of the error, the amount of correction for each line item and the amount of the correction for the earliest prior period.


Type of Change Type of Adjustment
Change in Accounting Policy Retrospective Adjustment
Change in Accounting Estimate Prospective Adjustment
Correction of an Error Retrospective Adjustment



  1. thanks for posting! will you be updating the other notes as well for PMR, or adding any additional PMR summaries?

    • While I can’t promise the whole PMR section will be done soon, I will do my best to keep adding one or two notes per week.

      The notes that are already up should all be up to date (i.e. no changes since they are written) 🙂

      Thanks for reading!

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