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

IFRS IAS 8 Accounting policies changes in accounting estimates and errors

IFRS IAS 8 Accounting policies changes in accounting estimates and errors : It is an international financial reporting standard (IFRS) adopted by the International Accounting Standards Board (IASB). It prescribes the criteria for selecting and changing accounting policies, accounting for changes in estimates and reflecting corrections of prior period errors.

The standard requires compliance with IFRS which are relevant to the specific circumstances of the entity. In a situation where no specific guidance is provided by IFRS, IAS 8 requires management to use its judgement to develop and apply an accounting policy that is relevant and reliable.Changes in accounting policies and corrections of errors are generally accounted for retrospectively, unless this is impracticable; whereas changes in accounting estimates are generally accounted for prospectively.

IAS 8 was issued in December 1993 by the International Accounting Standards Committee, the predecessor to the IASB. It was reissued in December 2003 by the IASB.

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

Where an IFRS specifically applies to a transaction, event or condition, the accounting policy applied to that item should be determined by reference to that standard.When no standard applies specifically to a transaction, event or condition, management should use its judgement to develop a policy that results in information that is relevant to the economic decision-making needs of users and reliable, such that the financial statements faithfully represent the financial position, performance and cash flows of the entity, reflect the economic substance of transactions, events and conditions, are free from bias, prudent, and complete in all material respects.

IFRS IAS 8 Accounting policies changes in accounting estimates and errors:

In making judgement, management should take into account the requirements in IFRSs dealing with similar and related issues, and the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Conceptual Framework. Management may also consider recent pronouncements of other standard-setting bodies, accounting literature and accepted industry practices, to the extent that these do not conflict with IFRSs and the Framework.

Accounting policies should be applied consistently for similar transactions, events or conditions, unless an IFRS requires or permits different accounting policies to be applied to different categories of items.

An entity can change an accounting policy only if it is required by an IFRS or results in the financial statements providing reliable and more relevant information.If the change is due to requirement by an IFRS, an entity shall account for the change from the initial application of the IFRS in accordance with the specific transitional provisions if any.Where there are no specific transitional provisions in the IFRS requiring the change in accounting policy, or an entity changes an accounting policy voluntarily, it should apply the change retrospectively.

Where a change in accounting policy is applied retrospectively, an entity should adjust the opening balance of each affected component of equity for the earliest prior period presented and the other comparative amounts for each prior period presented as if the new accounting policy had always been applied. The standard permits exemption from this requirement when it is impracticable to determine either the period-specific effects or cumulative effect of the change.

IFRS IAS 8 Accounting policies changes in accounting estimates and errors- Objectives:

The objective of this Standard is to prescribe the criteria for selecting and changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates and corrections of errors. The Standard is intended to enhance the relevance and reliability of an entity’s financial statements, and the comparability of those financial statements over time and with the financial statements of other entities.

Accounting policies Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements. When an IFRS specifically applies to a transaction, other event or condition, the accounting policy or policies applied to that item shall be determined by applying the IFRS and considering any relevant Implementation Guidance issued by the IASB for the IFRS.

In the absence of a Standard or an Interpretation that specifically applies to a transaction, other event or condition, management shall use its judgement in developing and applying an accounting policy that results in information that is relevant and reliable.

IFRS IAS 8 Accounting policies changes in accounting estimates and errors: In making the judgement management shall refer to, and consider the applicability of, the following sources in descending order:

(a) the requirements and guidance in IFRS dealing with similar and related issues; and

(b) the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Conceptual Framework.

An entity shall select and apply its accounting policies consistently for similar transactions, other events and conditions, unless an IFRS specifically requires or permits categorisation of items for which different policies may be appropriate.

If an IFRS requires or permits such categorisation, an appropriate accounting policy shall be selected and applied consistently to each category.

Change in accounting estimate The use of reasonable estimates is an essential part of the preparation of financial statements and does not undermine their reliability. A change in accounting estimate is an adjustment of the carrying amount of an asset or a liability, or the amount of the periodic consumption of an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities.

IFRS IAS 8 Accounting policies changes in accounting estimates and errors:Changes in accounting estimates result from new information or new developments and, accordingly, are not corrections of errors. The effect of a change in an accounting estimate, shall be recognised prospectively by including it in profit or loss in:

(a) the period of the change, if the change affects that period only.

(b) the period of the change and future periods, if the change affects both.

IFRS IAS 8 Accounting policies changes in accounting estimates and errors: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:

(a) was available when financial statements for those periods were authorised for issue; and

(b) could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements. Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud.

Except to the extent that it is impracticable to determine either the period-specific effects or the cumulative effect of the error, an entity shall correct material prior period errors retrospectively in the first set of financial statements authorised for issue after their discovery by:

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

IFRS IAS 8 Accounting policies changes in accounting estimates and errors:

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