top of page

Changes in Accounting Policies, Estimates and Errors: IAS 8 (IFRS)

Updated: Sep 17, 2020

As discussed in our previous article on Financial Statement Comparisons: IAS 1, entities need to maintain consistency between reporting periods in order to abide by the Comparability principle. Despite this requirement, they may still need to make accounting changes. For example, an entity may be readying for an Initial Public Offering, and be required to switch their accounting framework from ASPE to IFRS.

In order to maintain the Comparability principle, we need to present the financial statements in a manner that keeps things consistent, even if, during the prior reporting periods, we were using a different framework or accounting policy. Remember that investors often base their decisions on trends, by making period on period comparisons. Keeping statements consistent is the only way for arm’s length readers to be able to make these comparisons.

IAS 8 provides guidance on how to handle:

  • accounting policy changes,

  • changes in accounting estimates, and

  • errors in accounting from previous periods.

We will review each case, individually, below.

Prior to making any changes in accounting policies or estimates, it is important to note that IAS 8 only allows us to make these changes if:

  1. they are required by IFRS; OR

  2. the changes results in the financial statements providing more reliable and relevant information.

Changes in Accounting Policy


IAS 8 states that a change in accounting policy is a change to the specific “principles, bases, conventions, rules and practices applied by an entity” when entities are preparing their financial statements.


A change in accounting policy is accounted for as follows:

  1. If the changes are due to the entity initially adopting IFRS (as mentioned in the example above), then we will need to follow very specific guidance presented in IAS 8.

  2. However, if this is a new accounting policy, we must apply the policy as if it has always existed and amend all balances from the prior reporting period shown. This includes restating all opening balances in the financial statements. This application ensures comparability between reporting periods.

For example:

  • If an entity changes changes from FIFO to Weighted Average method of assigning costs to its ending inventory, then the Statements of Financial Position will need to be presented using the new accounting policy for both the current reporting period and the prior reporting period.

  • If an operation is discontinued in one of the reporting periods, it should be presented as discontinued in the prior comparative period. Vice versa is also true. This seems strange, because in the prior reporting period the operation may not have been discontinued, so why would we present it as such? The answer is simply that this is required to ensure we abide by the Comparability principle. Note that Discontinued Operations and the loss or profit from the sale of these operations should be shown in the Profit/Loss section of the Income Statement and not in Other Comprehensive Income section.

Changes in Accounting Estimates


IAS 8 states that a change in accounting estimate “is 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.” These changes in estimates typically result from new information and/or new developments that have arisen since the last reporting period. This is what differentiates accounting estimate from accounting errors.

Examples of changes in estimates include:

  • changes in bad debts provisions,

  • changes in warranty provision estimates,

  • changes in residual values of depreciating assets,

  • changes in asset lifespan estimates for depreciating assets.

These examples represent changes in estimation techniques. They are not errors or accounting policy changes.


When a change in accounting estimate occurs, we must apply the new accounting estimate after the date at which the estimate is changed. We should only recognize its financial effects in the current reporting period and future periods. Unlike changes to accounting policies - we do not need to go back and show the effects of the changes in prior reporting periods. For elements that appear on the Income Statements, we will show the new estimates in the current Income Statements and those of the future, only. For changes affecting the Statement of Financial Position (assets, liabilities or equities), we will only need to adjust the carrying amount of those assets, liabilities or equities for the period in which the change occurred, and ensure consistency moving forward. We will not need to restate the opening balances or make changes to prior period’s statements.

Accounting Errors


IAS 8 defines accounting errors as omissions and misstatements in the entity’s financial statements, from either the misuse or the failure to use reliable information that:

  • “was available when financial statements for those periods were authorized for issue; AND

  • could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements.” (IAS 8)

Examples of accounting errors include:

  • mistakes in accounting policy application,

  • oversight,

  • mathematical mistakes,

  • misinterpretation, and

  • fraud.

If the entity was applying the wrong accounting policy/frameworks and is now transitioning to using the correct one, this is considered an accounting error and not an accounting policy change.


If we discover an accounting error in the financial statements, we should correct all prior period material, as far back as the first set of financial statements that contain the error.

We will also need to:

  • Restate any comparative amounts for prior reporting periods in which the error occurred, OR

  • For elements of the Statement of Financial Position (assets, liabilities, equities), we will need to restate the opening balances for the earliest period presented in the new financial statements.

So Much Work!

If it seems like a lot of work, that’s because it usually is. Thankfully, IAS 8 also addresses the impracticability of it all.

IAS 8 states that for any prior period, it is considered impractical to apply changes in accounting policies retrospectively, or to correct an error in prior periods' financial statement if:

a) We cannot determine what the effect of the retrospective application (or restatement) would be; OR

b) We require assumptions about what the management’s intent would have been in that prior period; OR

c) We require significant estimates, and it is not possible to make an objective estimate, because:

  • we require evidence of circumstances that existed on that date, and we do not have sufficient evidence; OR

  • the evidence would have only been available when the financial statements were authorized for issue.

While making retrospective changes may still be a lot of work, at least there's some reprieve when it's too difficult to make the appropriate estimate or when we simply cannot know the impact of the changes on the financial statements.

Help improve this article

If you have feedback or questions, please leave a comment in the section below.

Sign Up!

Click our Sign Up button (top of page) to receive updates, additional exam prep information and to connect with our community.

655 views0 comments

Recent Posts

See All

Analyzing Financial Issues

When analyzing financial case studies, always break them down into smaller issues, which can then be addressed individually. If you are writing your CPA Exams (CFE or others), exam time will be const

Statement of Financial Position / Balance Sheet Elements

The Statement of Financial Position (a.k.a Balance Sheet using Canadian ASPE accounting standards) presents the company's total assets, liabilities and the netted amount - called shareholder's equity.

Statement of Profit or Loss / Income Statement Elements

The Statement of Profit or Loss (a.k.a. Income Statement using Canadian ASPE) shows the company's earnings and expenses. Different countries may have their own unique presentation standards for the sa

bottom of page