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IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors Image: Financial reporting under IAS 8 – Accounting Policies and Errors Focus Keyphrase: IAS 8 Overview and Objective IAS 8 sets out the criteria for selecting and applying accounting policies, as well as how to account for changes in accounting policies, changes in accounting estimates, and corrections of prior period errors. The objective of this Standard is to enhance the relevance, reliability, and comparability of financial statements across periods and entities. Scope and Definition IAS 8 applies to all entities in the preparation and presentation of general-purpose financial statements under IFRS. It ensures that users can compare an entity’s financial performance over time and with that of other entities. Accounting Policies Accounting policies are specific principles, bases, conventions, rules, and practices applied by an entity in preparing and presenting financial statements. Entities must apply accounting policies consistently for similar transactions unless a Standard requires or permits categorization. Selection of accounting policies: If an IFRS applies specifically to a transaction, management must apply that Standard. If no specific IFRS applies, management uses its judgment to develop and apply a policy that provides relevant and reliable information, considering the IFRS Framework and pronouncements from other standard setters. Changes in Accounting Policies Changes in accounting policies occur when an entity adopts a new accounting policy or modifies an existing one. Such changes are allowed only if: Required by a new IFRS or interpretation; or Result in more reliable and relevant financial information. Changes in accounting policies must be applied retrospectively, meaning prior period financial statements are restated as if the new policy had always been applied, unless impracticable. Changes in Accounting Estimates Accounting estimates are adjustments to the carrying amount of an asset or liability that result from the assessment of its current status and expected future benefits and obligations. Changes in accounting estimates arise from new information or developments and are not corrections of errors. Such changes are applied prospectively — meaning they affect only the current and future periods. Examples: Revision of useful lives or residual values of fixed assets, and changes in provision estimates for doubtful debts. Prior Period Errors Prior period errors are omissions or misstatements in financial statements of one or more prior periods due to failure to use or misuse of reliable information available at the time. Errors include mathematical mistakes, mistakes in applying accounting policies, or fraud. Corrections of prior period errors are made retrospectively by restating comparative figures or opening balances of assets, liabilities, and equity for the earliest prior period presented. Disclosure Requirements The nature of the change in accounting policy or estimate. The reasons why the new policy provides more reliable or relevant information. The amount of adjustment for the current and prior periods. If retrospective application is impracticable, explanation of why and how the change was applied. Practical Example – Akwaaba Foods Ltd. (Ghana) Akwaaba Foods Ltd. revised the estimated useful life of its packaging equipment from 8 years to 6 years due to technological advancement. This represents a change in accounting estimate, which should be applied prospectively. If instead, Akwaaba adopted IFRS 15 for the first time, this would constitute a change in accounting policy, requiring retrospective restatement of prior periods. Why IAS 8 Matters for ICAG Exams IAS 8 is frequently tested in the ICAG Financial Reporting and Corporate Reporting papers. Students must clearly distinguish between changes in accounting policies, estimates, and errors, as marks are often lost for mixing these up. Knowing the difference between retrospective and prospective applications is key to scoring high. Exam Practice Questions Multiple Choice Questions (MCQs) 1. Which of the following is a change in accounting estimate? A. Adopting IFRS 16 for the first time B. Correction of a mathematical error C. Revising the residual value of a machine D. Restating prior year inventory valuationAnswer: C 2. Changes in accounting policies are applied: A. Prospectively B. Retrospectively C. Currently D. VoluntarilyAnswer: B 3. Which of the following constitutes a prior period error? A. Change in method of depreciation B. Failure to accrue for an expense known in prior period C. Change in useful life of an asset D. Estimation of bad debtsAnswer: B Structured Question ScenarioType of ChangeApplicationDisclosure Required?Adoption of IFRS 9 for financial instrumentsChange in accounting policyRetrospectiveYesRevision of provision for warranty claimsChange in accounting estimateProspectiveYesCorrection of an omitted liability from last yearPrior period errorRetrospectiveYes Internal Links Continue your IFRS journey: IAS 1 – Presentation of Financial Statements IAS 2 – Inventories IAS 7 – Statement of Cash Flows Meta Description Learn IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors with examples from Ghana’s Akwaaba Foods Ltd. Perfect for ICAG and ACCA students. Understand retrospective vs. prospective application with practice questions. Excerpt This post explains IAS 8 in detail, covering accounting policies, estimates, and prior period errors with Ghana-based examples and ICAG-focused exam practice questions. For official guidance, refer to the IAS 8 Standard on the IFRS Foundation website.

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IAS 8 – Accounting Policies and Errors

IAS 7 – Statement of Cash flows

IAS 2 – Inventories

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IAS 1 – Presentation of Financial Statements

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