IAS 8 — Amendment To-Accounting Policies, Changes in Accounting Estimates and Errors

IAS 8 includes ,
🎀Definition of accounting policies, changes in accounting estimates, and errors
🎀Selection and application of the accounting policies
🎀Principles of accounting for the changes in accounting policies, estimates and errors
🎀Guidance on when can an entity change its accounting policies

🤞What’s new then?
Definition of the accounting estimates

🤞What about existing one?
To be replaced by new one

🤞Why the change but?
Companies sometimes struggle to distinguish between accounting policies and accounting estimates and enforcers have identified divergent practices and the Interpretations Committee received a request to clarify the distinction. The Interpretations Committee passed the request on to the IASB. Hence, the change is being effected.
The clearer definition is important because changes in accounting policies must be applied retrospectively whereas changes in accounting estimates are required to be accounted for prospectively

However, the International Accounting Standards Board (IASB) has published ‘Definition of Accounting Estimates (Amendments to IAS 8)’ to help entities to distinguish between accounting policies and accounting estimates.

The amendments are effective for annual periods beginning on or after 1 January 2023. Earlier application is permitted.

Below are the changes to IAS 8

🎶New Definition :
Accounting estimates are “monetary amounts in financial statements that are subject to measurement uncertainty”

🎶Further guidance, entities develop accounting estimates if accounting policies require items in financial statements to be measured in a way that involves measurement uncertainty

🎶The Board clarifies that a change in accounting estimate that results from new information or new developments is not the correction of an error. In addition, the effects of a change in an input or a measurement technique used to develop an accounting estimate are changes in accounting estimates if they do not result from the correction of prior period errors.

🎶A change in an accounting estimate may affect only the current period’s profit or loss, or the profit or loss of both the current period and future periods. The effect of the change relating to the current period is recognized as income or expense in the current period. The effect, if any, on future periods is recognized as income or expense in those future periods.

👍Quick Summary :
The changes to IAS 8 focus entirely on accounting estimates and provides a more elaborative definition to the existing ones. The change is only in the definition of the existing “change in accounting estimates” is replaced with a new definition of “accounting estimates”. The change is in effect from the period beginning on or after 1 January 2023. Earlier application is permitted.

Thank you!👏