Accounting Policies, Changes in Accounting Estimates and Errors (Ind AS 8) Scope, Definitions, Accounting Policies, Changes in Accounting Policies, Changes in Accounting Estimates, Errors Disclosures of Changes in Accounting policies

Ind AS 8, “Accounting Policies, Changes in Accounting Estimates and Errors,” provides guidance on the selection and application of accounting policies, along with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates, and corrections of errors. The standard is aimed at enhancing the relevance and reliability of an entity’s financial statements and ensuring comparability over time and with other entities’ financial statements.

Key Provisions of Ind AS 8

Accounting Policies:

• These are the specific principles, bases, conventions, rules, and practices applied by an entity in preparing and presenting financial statements.
• When a Standard or an Interpretation specifically applies to a transaction, other event, or condition, the accounting policy or policies applied to that item shall be determined by applying the Standard or Interpretation.
• In the absence of an Ind AS that specifically applies, management uses its judgment in developing and applying an accounting policy that results in information that is relevant and reliable.

Changes in Accounting Policies:

• Can only be made if required by an Ind AS or if the change results in the financial statements providing reliable and more relevant information about the effects of transactions, other events, or conditions on the entity’s financial position, financial performance, or cash flows.
• The change is applied retrospectively, and the effect of the change is adjusted in the opening balance of retained earnings of the earliest period presented.

Changes in Accounting Estimates:

• These are adjustments of the carrying amounts of assets or liabilities, or the amount of the periodic consumption of an asset, that result from the assessment of the present status and expected future benefits and obligations associated with assets and liabilities.
• Changes in accounting estimates are applied prospectively by including them in the profit and loss for the period of the change, if the change affects that period only, or in the period of the change and future periods if the change affects both.
• These changes are not corrections of errors but are the result of new information or developments and, therefore, are not applied retrospectively.

Errors Disclosures of Changes in Accounting policies

Changes in Accounting Policies

When there is a change in accounting policy, either due to a new standard or interpretation or a voluntary change for more relevant and reliable information, Ind AS 8 requires the following disclosures:

• The Nature of the Change in Accounting Policy:

A description of the change and the reasons why the new accounting policy provides reliable and more relevant information.

• The Amount of the Adjustment:

For the current period and each prior period presented, the amount of the adjustment to each item affected in the financial statements, including the effect on basic and diluted earnings per share if applicable. If it is impracticable to determine the amount of an adjustment for one or more prior periods, that fact should be disclosed.

• The Amount of the Adjustment Relating to Periods Before Those Presented:

A description of how the change in accounting policy affects the financial statements, including the total adjustment to each financial statement line item and to basic and diluted earnings per share for the periods before those presented, if practicable. If not practicable, this should be stated.

• If Retrospective Application is Impracticable:

An explanation and description of how the change in accounting policy was applied.

Correction of Errors

For the correction of material prior period errors, Ind AS 8 requires disclosures similar to those for changes in accounting policies:

• The Nature of the Prior Period Error:

A clear description of the error and the fact that it is a correction of a prior period error.

• For Each Prior Period Presented in Comparative Information:

The amount of the correction for each financial statement line item affected and the correction of basic and diluted earnings per share. This disclosure is required for each prior period presented.

• The Cumulative Effect of the Error on Periods Before Those Presented:

If it is practicable to determine the amount of the correction, disclose the cumulative effect on the periods before those presented. If not, this fact should be disclosed.

• If Retrospective Restatement is Impracticable:

When it is impracticable to determine the amounts to be restated for one or more prior periods, an entity should disclose that fact and explain why applying the retrospective restatement is impracticable.