Restate every prior period, or simply adjust from today onward? That single question sits behind one of the most consistently confused pairs in ICAG Financial Reporting: a change in accounting policy versus a change in accounting estimate. IAS 8 draws the line precisely — and gives you a direct tie-breaker for the genuinely hard cases.
What Is a Change in Accounting Policy?
IAS 8 defines accounting policies as “the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements.” A change is only permitted if it “is required by an IFRS; or… results in the financial statements providing reliable and more relevant information” (paragraph 14). Once a genuine change happens, it is applied retrospectively — “as if that policy had always been applied” — meaning prior periods and comparatives are restated.
What Is a Change in Accounting Estimate?
IAS 8 defines it as “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,” adding that such changes “result from new information or new developments and, accordingly, are not corrections of errors.” Paragraph 34 reinforces this: “By its nature, the revision of an estimate does not relate to prior periods.” Estimate changes are recognised prospectively — in the current period, or the current and future periods — and prior periods are never restated.
The Golden Rule — Paragraph 35
IAS 8 gives a direct tie-breaker: “A change in the measurement basis applied is a change in an accounting policy, and is not a change in an accounting estimate. When it is difficult to distinguish a change in an accounting policy from a change in an accounting estimate, the change is treated as a change in an accounting estimate.” A change in the actual basis used to measure something — such as the inventory cost formula — is always a policy change. When a scenario is genuinely ambiguous, default to treating it as an estimate.
A Third Category — Prior Period Errors
IAS 8 also defines prior period errors as omissions or misstatements arising “from a failure to use, or misuse of, reliable information” that was available at the time. Unlike an estimate revision, an error correction does relate to the past and is corrected retrospectively — sharing its treatment with policy changes, not estimate changes.
The Comparison Table
| Feature | Accounting Policy Change | Accounting Estimate Change |
|---|---|---|
| Relates to prior periods? | Yes | No |
| Recognition | Retrospective — restated | Prospective — not restated |
| Correction of an error? | No | No, explicitly (para 34) |
| Governing tie-breaker | Measurement basis change = always policy (para 35) | If genuinely unclear, default to estimate (para 35) |
The Trap Examiners Set
The most common error is defaulting every change to “just an estimate” because prospective treatment feels simpler. Examiners specifically write scenarios describing a change in measurement basis, which paragraph 35 makes clear is always a policy change, however small the numbers involved.
EXAM TIP: Run every scenario through three questions: has the measurement basis or rule changed (policy — restate)? Has only a judgement input changed from new information (estimate — apply forward only)? If genuinely unclear which, invoke paragraph 35 and default to estimate treatment.
Conclusion
This pair looks like a simple restate-or-don’t-restate question and is actually a substance test. A policy change alters the rule itself and forces you back into the past; an estimate change refines a judgement and only ever looks forward. Anchor every answer to paragraph 35, and this pair stops costing marks.
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