Direct Tax Services
Select Your Location
The goal of this Accounting Standard, i.e., IAS 8 is to regulate the criteria for choosing and revising accounting policies, as well as the accounting treatment and presentation of the changes made in accounting policies, modifications in accounting estimates, and any corrections of prior period errors.
Table of Contents
The purpose of the Standard is to improve the relevance and dependability of an entity’s financial statements, as well as their comparability over the period of time and with the financial statements of other businesses.
The tax impacts of rectifying the prior period errors and making retrospective adjustments to reflect the changes in accounting policies should be accounted for, presented, and disclosed according to IAS 12 on Income Taxes.
This Standard is to be applied by an entity for annual periods beginning on or after January 1, 2005.
Accounting policies are the unique principles, foundations, conventions, regulations, and practices that a company uses in creating and presenting its financial statements.
A change in an accounting estimate refers to an adjustment in the carrying value of an asset or liability of the entity that has resulted from reassessment of the current status of expected benefits and expected obligations of the future linked with the asset or liability.
Prior period errors are any type of omissions or misstatements found in the financial statements of a business concern in relation to one or more prior periods. These omissions or misstatements result from a failure to use reliable information or from the misuse of reliable information that was accessible at the time the financial statements for that particular period were prepared & issued; and thus, could have been fairly expected to be taken into account in the preparation and presentation of such financial statements.
Material omissions or misstatements are related to items that potentially have a significant impact, either individually or collectively, on the economic decisions that users make based on the financial statements.
The extent and character of the omission or misstatement, as considered in the context of the business, determine its materiality. The item’s size or nature, or a mix of both, might be the deciding factor for materiality.
In a retrospective application, a new accounting policy is applied to events, other business affairs, and conditions as if it had always been implemented.
According to IAS 8, when an IFRS relates to a transaction, occurrence, or condition in a specified way, then the accounting policy is determined by applying that particular IFRS. In other words, when an IFRS applies explicitly to a transaction, other occurrences, or circumstance, the accounting policy or policies that apply to that item must be determined by applying the relevant IFRS and by taking into account any Implementation Guidance provided by the IASB for that IFRS.
Where there is no Standard or an interpretation that specifically relates to a transaction, other occurrences, or situation, the management of the company must exercise its discretion in designing and implementing an accounting policy that produces relevant and reliable information. In reaching its decision, the management of the company shall refer to and assess the relevance of the following sources, listed in descending order:
IAS 8 states that unless an IFRS clearly mandates or authorizes categorization of things for which alternative policies may be applicable, a company shall select and implement its accounting policies consistently for similar transactions, other occurrences, and situations. If an IFRS requires or allows for such categorization, then a suitable accounting policy must be chosen and it should be consistently applied to each such category.
A corporation may change its accounting policy only when the same is needed by an IFRS or when the change results in the financial statements of the company to depict more accurate and reliable information in relation to the effects of transactions, other occurrences, or conditions on the corporation’s financial position, financial results, and cash flows.
A change in accounting policy originating from the initial adoption of an IFRS must be accounted for in line with the specific transitional provisions, if there is any, in that IFRS. Where a company changes an accounting policy during the initial implementation of an IFRS that does not comprise specified transitional provisions for that change, or where the company modifies an accounting policy voluntarily, the change has to be applied retrospectively.
IAS 8 further clarifies that a change in accounting policy, on the other hand, must be applied retrospectively unless it is impossible to ascertain either the period-specific or cumulative impacts of the change.
Disclosures concerning the changes in accounting policies that are caused by a new standard are as follows:
Disclosures concerning the voluntary changes in accounting policies are as follows:
The use of reasonable estimates is an important aspect of financial statement preparation and does not jeopardize their accuracy. Changes in accounting estimations are the result of fresh information or new developments and are not, therefore, corrections of errors.
According to IAS 8, the impact of a change in an accounting estimate must be recorded prospectively and should be included in profit or loss in the period in question, i.e.,
Disclosures concerning the changes in estimates are as follows:
Prior period errors include the consequences of arithmetical errors, errors in the application of accounting principles by the company, inadequacies or misinterpretations of facts in the books, and fraud.
Unless it is impractical to assess either the period-specific or cumulative effect of the prior period error or mistake, a business concern must fix major prior period errors retrospectively in the first set of financial statements approved for release following their discovery.
The errors must be corrected by restating the comparable figures for the earlier period or periods reported in which the error occurred. Or else, if the error or mistake happened before the most previous prior period presented, then it must be corrected by restating the beginning balances of assets, liabilities, & equity for the most recent prior period presented.
Disclosures concerning the prior period errors are as follows:
This Indian Accounting Standard (IAS 8) must be followed when choosing and implementing accounting policies, as well as when accounting for any changes made in accounting policies, changes in accounting estimations, and corrections of the prior-period errors.
Read our Article:A Detailed Overview of IFRS 1
A CA together with MBA (Fin) and M Com, she relishes taking interest in insightful writing in the domain of taxation and finance. She has gained experience as a full-time author and has also served an accounting role in industry.
Many investors use fixed deposits as their primary investment vehicle. Investors with a high-ri...
The main idea of CDS, which was initially to give banks a way to transfer credit exposure, has...
Black money has been the subject of heated political debate in India for a long time. Successiv...
The Apex Court pronounced a judgement in the case titled Tata Motors Vs The Brihan Mumbai Elect...
Since economies are moving towards digitalisation and making it feasible to conduct transaction...
The Alternative Investment Funds (AIFs) Pro-rata and Pari-Passu Rights Proposal Consultation Pa...
The Financial Action Task Force, i.e. FATF (the Force), is the global money laundering and terr...
Advance tax refers to the payment of the tax liability before the end of the relevant financia...
On 11.12.15, the Hon’ble Delhi High Court (HC) pronounced a landmark judgement in the case ti...
Money laundering can be defined as the process of illegal concealment of the origin of money ob...
Are you human?: 8 + 2 =
Easy Payment Options Available No Spam. No Sharing. 100% Confidentiality
In every company, the management needs information to arrive at decisions and evaluate the company's performance in...
08 Jul, 2020
It goes against conventional wisdom but cash crunches don’t always result from a company growing too quickly. In...
20 Dec, 2017
Red Herring Top 100 Asia enlists outstanding entrepreneurs and promising companies. It selects the award winners from approximately 2000 privately financed companies each year in the Asia. Since 1996, Red Herring has kept tabs on these up-and-comers. Red Herring editors were among the first to recognize that companies such as Google, Facebook, Kakao, Alibaba, Twitter, Rakuten, Salesforce.com, Xiaomi and YouTube would change the way we live and work.
Researchers have found out that organization using new technologies in their accounting and tax have better productivity as compared to those using the traditional methods. Complying with the recent technological trends in the accounting industry, Enterslice was formed to focus on the emerging start up companies and bring innovation in their traditional Chartered Accountants & Legal profession services, disrupt traditional Chartered Accountants practice mechanism & Lawyers.
Stay updated with all the latest legal updates. Just enter your email address and subscribe for free!
Chat on Whatsapp
Hey I'm Suman. Let's Talk!