Status & recent changes
- IFRS 18 makes consequential amendments to IAS 8 that apply from 1 January 2027: the standard is retitled 'Basis of Preparation of Financial Statements', and some general requirements previously in IAS 1 are moved into it. The core rules on policies, estimates and errors summarised here are carried forward, but check the amended text for the detail.
- Amendments effective from 2023 introduced a definition of accounting estimates and clarified how they differ from accounting policies.
Objective
Sets the rules for selecting and changing accounting policies, and for accounting for changes in estimates and correcting prior period errors.
Scope
- Selecting and applying accounting policies.
- Accounting for changes in policies, changes in estimates and corrections of prior period errors.
- Tax effects of corrections and of retrospective adjustments are dealt with under IAS 12.
Key definitions
- Accounting policies
- The specific principles, bases, conventions, rules and practices an entity applies in preparing and presenting financial statements.
- Accounting estimates
- Monetary amounts in the financial statements that are subject to measurement uncertainty, such as useful lives, expected credit losses and provisions.
- Prior period errors
- Omissions or misstatements in prior financial statements from failing to use, or misusing, reliable information that was available and could reasonably have been obtained (e.g. mathematical mistakes, misapplied policies, oversights, fraud).
- Retrospective application
- Applying a new policy as if it had always been applied.
- Prospective application
- Applying a change from the date of the change onwards, in current and future periods.
Recognition & measurement
Accounting policies
- Where a standard applies, use it. Where none applies, management uses judgement, looking first to standards dealing with similar issues, then the Conceptual Framework, and may consider other standard-setters' pronouncements that do not conflict.
- Apply policies consistently for similar transactions.
- Change a policy only if required by a standard or if the change gives reliable and more relevant information.
- Voluntary changes are applied retrospectively: restate comparatives and adjust opening retained earnings of the earliest period presented, unless impracticable.
- Applying a policy to transactions that are new or differ in substance is not a change in policy.
Estimates and errors
- Changes in estimates are applied prospectively, in the period of change and future periods if affected.
- A change in measurement technique (e.g. a different depreciation method) is a change in estimate unless it corrects an error.
- Material prior period errors are corrected retrospectively by restating comparatives (or opening balances of the earliest period presented), unless impracticable.
- If it is hard to tell whether a change is a policy or an estimate, treat it as a change in estimate.
Key disclosures
- Nature of a policy change, reasons, and the adjustment for each line item affected.
- Nature and amount of a change in estimate affecting the current period (and future periods, if practicable).
- Nature of a prior period error and the correction for each line item and prior period presented.
- New standards issued but not yet effective, with known or reasonably estimable impact.
Common exam traps
- Changing depreciation method or useful life is a change in estimate (prospective), not a policy change.
- Changing from the cost model to the revaluation model under IAS 16/IAS 38 is a change in policy, but it is dealt with as a revaluation under those standards rather than retrospectively under IAS 8.
- Errors are corrected through opening retained earnings, not the current year's profit or loss.
- Using hindsight to estimate past amounts is not allowed when restating.
Worked example: Change in useful life (change in estimate)
Scenario. A machine cost $100,000 and was being depreciated straight-line over 10 years with nil residual value. At the start of year 5 the remaining useful life is revised to 4 years.
- Carrying amount after 4 years = 100,000 − (4 × 10,000) = $60,000.
- Change in estimate → prospective: spread the carrying amount over the revised remaining life.
- New annual depreciation = 60,000 ÷ 4 = $15,000.
Answer: Charge $15,000 a year from year 5; prior years are not restated.
Practise MCQs on this standard
Test your understanding of IAS 8 with free chapter-wise MCQs and explanations in these question banks.
CAF-1 Financial Accounting and ReportingICAP CAFACCA FA Financial AccountingACCAACCA FR Financial ReportingACCACAF-6 Corporate ReportingICAP CAFCIMA BA3 Fundamentals of Financial AccountingCIMA Certificate in Business AccountingICAEW AF Accounting FundamentalsICAEW ACA Certificate LevelCA Inter P1 Advanced AccountingICAI CA Intermediate
ICAI CA Intermediate examines Indian Accounting Standards, which are based on but can differ from IFRS. Check your syllabus.