Summary

Summary IAS 8 Accounting policies, estimates and errors

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Course
BCom Chartered Accountancy (ACCC272)

Institution
North-West University (NWU)

Book
Gripping GAAP

A summary of the disclosure standard IAS 8; accounting policies and how to disclose a change in accounting policy, how to disclose changes in accounting estimates and calculate the effect thereof in prior and current financial years and how to correct different types of errors and disclose them

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Uploaded on January 31, 2025
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Study unit 11
IAS 8 Accounting policies, changes in accounting estimates and errors

IAS 8 covers 3 areas:
1. Accounting policies:
 How to select/develop them IAS 8 is a DISCLOSURE
 How to change them standard
2. Accounting estimates: (what happened vs what
 How to change them should have happened)
3. Errors:
 How to correct them

Accounting policies
The speciﬁc principles, bases, conventions, rules and practices applied by an entity in preparing and
presenting ﬁnancial statements
Mandatory
Accounting policies in e.g. Inventories (IAS 2)  lower of cost or net realisable value
the IFRS Choices
e.g. PPE (IAS 16)  Cost model or revaluation model

 Relevant
 Reliable
 Faithful representation
 Substance over form
 Neutral Developing our own
 Prudent accounting policy
 Complete
(if there is no accounting policy)
 Judgement
 Guided by IFRS on similar issues + conceptual framework
 Not conﬂicting: Pronouncements, accounting literature, Industry
accepted practices
 Consistency
 Over time + with disclosure of similar items (comparability)
Disclosure of accounting policies
Accounting policies are material if they are needed to understand other material transactions
What to disclose?
MEASUREMENT BASIS OTHER
 Historic cost  Where there was a choice: which one was chosen
 Current cost  If there was a change: what was the change and where
 NRV it resulted in material changes
 Fair value  Where the IFRS did not provide a policy & the entity
 Recoverable amount developed its own
 Signiﬁcant professional judgements

Judgements made in applying accounting policies may be disclosed with the material accounting
policy information or in the other notes
Disclosure is required for the judgments that management made in the process of applying entity’s
accounting policies and that has the most signiﬁcant e ect on the amounts recognized in the
ﬁnancial statements

, Changes in accounting policies
Can be:
1. Compulsory  required by an IFRS
2. Voluntary  entity believes the change will result in info being reliable and more relevant in
presentation of FS
The following is NOT considered a ‘change in accounting policy’:
 Event/transaction di ers in substance from previous transactions
 Did not occur previously/was previously immaterial
 Change from cost model to revaluation model (accounted for as a revaluation ito IAS 16 or IAS 38)

How to disclose a change in accounting policy:
IAS 8 requires retrospective application except if its impracticable
Impractical  cannot apply it after making every reasonable e ort to do so
Note: impracticable ≠ impossible

Retrospective application: Applying a new accounting policy ‘as if the policy had always been
applied’
Note: opposite = prospective application  only current year’s ﬁgures are recalculated

All prior periods presented must be recalculated based on the new policy (where practical)
 For periods that will be presented in the FS (current year & comparative years): e ect of change
in policy on each line item must be disclosed separately
 For periods that will not be disclosed: cumulative e ect of change in policy on equity will be
disclosed as ‘change in policy’ line-item in SoCE

If it is not practicable to calculate the e ect on all prior year’s, new AP is applied to the elements from
the earliest prior period that is considered practicable to adjust. (The cumulative e ect on all
elements prior to when it's practicable is disregarded.)

What should be disclosed?
 Title of IFRS (standard/interpretation)
 Nature of the change
 Extra year of comparative ﬁgures in SoFP (3 years)
 Amount of adjustments made to each line-item in FS for all the periods presented
 If prior period(s) are not adjusted:
 Why it is impracticable to adjust
 Description as to how & from what date the new policy has been applied
 If transitional provisions were provided:
 The fact that change has been made inn accordance with transitional provisions
 Description of provisions Summary:
 Possible e ect of provisions on future periods  Description of what policy changed
For voluntary changes:  Why it was changed (except if
compulsory)
 Reason why new AP results in reliable & more relevant info
 E ect on each line item
 Nature of the change  Extra year of comparatives
 Extra year of comparative ﬁgures in SoFP (3 years)
 Amount of adjustments made to each line-item in SoFP for all 3 years
 Amount of adjustments made to previous years
 If prior periods were not adjusted: why & from what date the new AP was applied

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