1. Ind AS 8: Accounting Policies, Changes in Accounting Estimates and Errors
CA PARAS JAIN
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2. Changes in Accounting Policies Changes in Accounting Estimates
Ind AS 8: Accounting Policies, Changes in Accounting Estimates and Errors
Accounting Policies
Changes in Accounting Policies
Scope
Accounting Estimates
Changes in Accounting Estimates
Prior Period Errors
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3. Accounting Policies
Accounting policies are the specific principles, bases, conventions, rules and practices applied in preparing and presenting financial statements.
Principles are the guidelines which must be followed when reporting financial transactions.
Bases are the methods in which accounting principles may be applied to financial transactions. Eg. Method used to depreciate assets.
Conventions consists of practices that arise from the practical application of accounting principles and is designed to help accountants
overcome practical problems that arise while reporting financial transactions.
Rules are the golden rules of debit and credit of accounting.
Practices are the ways by which its accounting policies are implemented and adhered to on a routine basis.
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4. Accounting Policies
When an Ind AS specifically applies to a transaction, the accounting policy applied to that transaction shall be determined by applying the respective Ind AS, else management shall use its judgement in developing and applying an accounting policy that results in information that is relevant and reliable.
In making the judgement, management shall refer to:
the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Framework;
Ind AS on similar and related issues;
Other financial reporting standards like IFRS, US GAAP.
Eg.- Accounting of spare parts, stand-by equipment and service equipment, Accounting of De-merger.
Accounting policies should be applied consistently.
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5. Change in Accounting Policies
An Accounting policy can be changed only if the change :
is required by an Ind AS (Mandatory change); or
results in providing reliable and more relevant information about the transaction on the entity’s financial statement (Voluntary change).
Accounting treatment of Changes in accounting policy:
If transitional provisions are mentioned in the respective Ind AS, then apply those provisions, else apply the change retrospectively unless impracticable.
Retrospective means adjust the opening balance of each affected component of equity for the earliest prior period presented and the comparative amounts disclosed for each prior period presented as if the new accounting policy had always been applied.
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6. Inventory as per old Accounting Policy
Eg. of change in accounting policy
Inventory as per old Accounting Policy
Inventories are valued at Cost.
 Item
Qty
Cost
Value A 10
120
1200 B 20
225
4500 C 30
200
6000
11700
Inventory as per new Accounting Policy
Inventories are valued at lower of Cost and Net Realizable Value (NRV).
NRV
Lower
125
220
4400
150
10100
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7. Changes in Accounting Estimates
Accounting estimates are the estimations used by management to recognize amounts in the financial statements where precise values cannot be determined.
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 (depreciation), that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities.
Changes in accounting estimates result from new information or new developments and accordingly are not corrections of errors.
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8. Changes in Accounting Estimates
Accounting treatment of Changes in accounting estimate:
The effects of change in accounting estimate is applied prospectively i.e. from the date of the change in estimate by including it in profit or loss in:
The period of the change, if the change affects that period only; or
The period of the change and future periods, if the change affects both.
If change in accounting estimate relates to items of asset, liability or equity, it shall be recognised by adjusting the carrying amount of the related item of asset, liability or equity in the period of the change.
Eg:- Change in amount of bad debts or change in the useful life of depreciable assets.
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9. Accounting Policies Versus Accounting Estimates
 Particulars
Accounting Policies
Accounting Estimates
What it is?
Principles, bases, conventions, rules and practices.
Amount / Patterns
Examples:
Change from historical cost to realisable value.
Change in the useful life of depreciable asset.
Accounting treatment when there is a change in
Retrospectively
Prospectively
A change in the measurement basis applied is a change in an accounting policy, not a change in an accounting estimate.
When it is difficult to distinguish between change in accounting policy and accounting estimate, the change is treated as a change in accounting estimate.
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10. Prior Period Errors
Prior period errors are omissions from, and misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:
was available when financial statement for those periods were approved for issue, and
could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statement.
Such errors include -
the effects of mathematical mistakes,
mistakes in applying accounting policies,
oversights or misinterpretations of facts, and
fraud.
Eg:- Forget to include borrowing cost in the cost of machinery.
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11. Accounting treatment of Prior period errors:
The entity must correct material prior period errors retrospectively in the first set of financial statements approved for issue after their discovery by restating:
the comparative amounts for the prior period presented in which the error occurred; or
the opening balance of assets, liabilities and equity for the earliest period presented, if the error occurred before the earliest prior period presented
unless impracticable.
Immaterial prior period error can be corrected in the financial statement of the period in which it is discovered.
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12. Particulars Change in Accounting estimates Prior Period Errors
CHANGE IN Accounting ESTIMATEs Versus PRIOR PERIOD ERRORS
Particulars
Change in Accounting estimates
Prior Period Errors
When there is
Result from new information or new developments.
Result from failure to use or misuse of available information.
Examples:
Change in the useful life of depreciable asset.
Forget to include borrowing cost in the cost of machiney.
Accounting treatment when there is
Prospectively
Retrospectively
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13. Summary Accounting Policy Accounting Estimate
Prior Period Error
Retrospectively
Retrospectively
Accounting Estimate
Prospectively
Q. Does restatement of prior period figures amounts to voluntary revision of financial statements?
A. No, as entity is restating prior period figures in the current period financial statement so it does not amounts to voluntary revision of financial statements.
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14. Comparision Slide 14 of 18 Sr. No. Particulars Ind AS / IFRS AS ICDS 1
Accounting Policy - Definition
Wider and includes bases, conventions, rules and practices.
Restricted to accounting principles and methods to apply accounting principles.
Same as AS 2
Accounting Policy - Selection
When an Ind AS / IFRS specifically applies to a transaction, the accounting policy applied to that transaction shall be determined by applying the respective Ind AS / IFRS, else management shall use its judgement in developing and applying an accounting policy that results in information that is relevant and reliable.
The major considerations governing the selection and application of accounting policies are:- a. Prudence b. Substance over Form c. Materiality
Accounting policies should be selected after taking into account the following factors: a. Substance over Form b. Marked to market loss or an expected loss shall not be recognised. 3
Change in Accounting Policy - Criteria
An Accounting policy can be changed only if the change : a) is required by an Ind AS / IFRS; or b) results in providing reliable and more relevant information about the transaction on the entity’s financial statement.
An Accounting policy can be changed only if the change : a) is required by an AS; or b) is required by statute; or c) results in more appropriate presentation of the entity’s financial statement.
An accounting policy shall not be changed without reasonable cause.
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15. Comparision Sr. No. Particulars Ind AS / IFRS AS ICDS 4
Change in Accounting Policy - Accounting treatment in absence of Transitional Provisions
Rectrospectively unless impracticable.
Does not specify. 5
Change in Accounting Estimate - Definition
Very clear definition.
Not in such clear terms.
Not covered by ICDS. 6
Prior period errors - Definition
Very clear and wide definition. 7
Prior period errors include frauds
Specifically mentioned.
Not specifically mentioned. 8
Prior period errors - Accounting treatment
Retrospectively unless impracticable.
Prospectively. 9
Prior period errors – Seperately reported in current year Profit and Loss
Seperate disclosure not required.
Seperate disclosure required.
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16. Presentation of Financial Statement Design of Building Ì
Presentation of Financial Statement
Design of Building
Accounting policies
Foundation of Building
Framework
Boundary of Building
Respective standards
Floors of Building
Principles of respective standards
Flats at respective floor of Building
Building will be strong when its foundation is strong.
Similarly Financial statement will be strong when its accounting policies are strong.
Here, Financial Statement will be strong means that Financial Statement comprises of Accounting Policies which are transparent, crystal clear and help users in making economic decisions.
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17. Slide 17 of 18

18. Thank You
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