IAS 8 – New Pocket guide

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors is applied in selecting and applying accounting policies, accounting for changes in estimates and reflecting corrections of prior period errors.

Accounting Policies

IAS 8 defines accounting policies as the specific principles, bases, conventions, rules, and practices applied by an entity in preparing and presenting financial statements.

Once an entity has selected its accounting policies, it will apply the selected accounting policies consistently for similar transactions, unless a Standard or an Interpretation requires different policies to be applied.

IAS 8 allows the selection and application of accounting policies:

  • If a standard or interpretation deals with a transaction, use that standard or interpretation
  • If no standard or interpretation deals with a transaction, judgment should be applied. The following sources should be referred to, to make the judgment:
  • Requirements and guidance in other standards/interpretations dealing with similar issues
  • Definitions, recognition criteria in the framework
  • May use other GAAP that use a similar conceptual framework and/or may consult other industry practice/accounting literature that is not in conflict with standards/interpretations

IAS 8 permits accounting policies to be changed when there is a change in the International Financial Reporting Framework, Change in local legislation, or for true and fair view of financial statements.

Accounting Treatment of Change in Accounting Policy

If change is due to new standard/interpretation, apply transitional provisions. If there are no transitional provisions, apply retrospectively.

When a change is applied retrospectively, the entity shall adjust the opening balances 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 policy has always been applied.

However, when it is impractical to determine period-specific effects or cumulative effects of the change, then retrospectively application to the earliest period that is practicable is permitted.


Refer Paragraphs: IAS 8: 28 – 31

Accounting estimate

A change in an 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 the asset or liability.

When an item of financial statements cannot be measured precisely, it can only be estimated. This is because of:

  • Uncertainties inherent in the business;
  • Where judgments are involved.

Change in accounting estimates becomes necessary as a result of new information or new development.

Accounting treatment of Change in Accounting Estimate

Change is recognised prospectively in profit or loss in the period of change, if it only affects that period; or period of change and future periods (if applicable).


Refer Paragraph IAS 8: 39 – 40


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

  • Was available when the financial statements for that period were issued
  • Could have been reasonably expected to be taken into account in those financial statements.

Errors include:

  • Mathematical mistakes
  • Mistakes in applying accounting policies
  • Oversights and misinterpretation of facts

Accounting treatment of Errors

An entity shall correct material prior period errors retrospectively in the first set of financial statements authorised for issue after their discovery by:

  • Restating the comparative amounts for the prior period(s) presented in which the error occurred; or
  • If the error occurred before the earliest prior period presented, where practicable, restating the opening balances of assets, liabilities, and equity for the earliest prior period presented.


Refer Paragraph IAS 8: 49


If you have a specific question about the application of IAS 8, please reach out to Ask@projectaccountants.co.uk or visit www.projectaccountants.co.uk.