IAS 8 provides guidance on the selection and application of accounting policies, as well as the treatment of changes in accounting policies, accounting estimates, and errors in financial statements. The standard aims to ensure that financial statements are presented fairly and consistently over time.
Some of the key provisions of IAS 8 are:
- Accounting Policies: Entities are required to select and apply accounting policies that are appropriate to their specific circumstances and result in financial statements that are relevant, reliable, and comparable. Where an accounting policy is not specified by IFRS, management must use judgment in selecting an appropriate policy.
- Changes in Accounting Policies: A change in accounting policy is only allowed if it is required by a new IFRS or if it leads to a more appropriate presentation of the financial statements. If a change is made, it must be applied retrospectively, with the adjustment to opening retained earnings, unless it is impracticable to do so.
- Accounting Estimates: Entities are required to make estimates and assumptions that affect the amounts reported in the financial statements. These estimates must be based on the best available information and reflect the most likely outcome.
- Changes in Accounting Estimates: Changes in accounting estimates must be recognized in the period in which the change is made, and any impact on future periods must also be disclosed.
- Correction of Errors: Material errors must be corrected retrospectively by restating prior period financial statements. Immaterial errors may be corrected prospectively, by adjusting the current period financial statements.
IAS 8 requires entities to disclose the nature and effect of any changes in accounting policies, accounting estimates, and errors in the financial statements. Additionally, entities must disclose the judgments and assumptions made in selecting and applying accounting policies. This disclosure helps users of financial statements to understand the impact of these changes on the reported financial information.