Updated 10 June 2026 · Reviewed by IFRS Buddy Editorial Team
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors establishes the criteria for selecting and applying accounting policies, and prescribes how entities account for changes in those policies, changes in estimates, and corrections of prior period errors. The overarching principle is comparability: users must be able to track an entity's financial position and performance consistently across periods (IAS 8.15).
Financial statements must present fairly the financial position, financial performance and cash flows of an entity. Fair presentation requires the faithful representation of transactions and other events, and selecting and applying accounting policies in accordance with IAS 8 (IAS 8.6A). Crucially, an entity cannot fix inappropriate accounting policies through disclosure alone — notes and explanatory material do not substitute for correct policy application (IAS 8.6D).
An accounting policy is a specific principle, basis, convention, rule or practice applied in preparing and presenting financial statements (IAS 8.5). When an IFRS applies directly to a transaction or condition, that IFRS determines the policy. Where no IFRS applies specifically, management uses judgement, referring in descending order to:
Once selected, policies must be applied consistently for similar transactions across periods (IAS 8.13). An entity may only change an accounting policy if the change is required by an IFRS, or if it results in financial statements that provide more reliable and relevant information (IAS 8.14).
Applying a policy to genuinely new or substantively different transactions is not a change in accounting policy (IAS 8.16).
When a policy change is made, it is generally applied retrospectively: the opening balance of each affected equity component for the earliest prior period is restated, and comparative amounts are adjusted as if the new policy had always been applied (IAS 8.22). Where retrospective application is impracticable for specific prior periods, the entity applies the new policy to the carrying amounts of assets and liabilities at the beginning of the earliest practicable period (IAS 8.24).
When it is impracticable to determine the cumulative effect across all prior periods, the new policy is applied prospectively from the earliest date practicable (IAS 8.25).
Accounting estimates are monetary amounts subject to measurement uncertainty. An accounting policy may require items to be measured at amounts that cannot be observed directly and must instead be estimated — in such cases, an entity develops an accounting estimate to achieve the objective set by the policy (IAS 8.32).
Changes in estimates are applied prospectively — prior periods are not restated. The effect is recognised in profit or loss in the period of change and, if applicable, future periods. Estimation is inherently subjective, and developing estimates is potentially more difficult when retrospectively applying a policy or making a correction (IAS 8.51).
Prior period errors are omissions or misstatements in previously issued financial statements arising from failure to use, or misuse of, reliable information. Errors are corrected by retrospective restatement: restating comparative amounts for the prior periods in which the error occurred, or if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity.
A critical constraint: hindsight must not be used when correcting prior period errors. Management must not make assumptions about what its intentions would have been, or estimate amounts for prior periods using information only available later (IAS 8.53). Tax effects of error corrections and retrospective policy adjustments are dealt with under IAS 12 (IAS 8.4).