IAS 8 *Accounting Policies, Changes in Accounting Estimates and Errors* establishes the criteria for selecting and changing accounting policies, and prescribes how changes must be reflected in the financial statements. The standard's core objective is to enhance comparability across periods and between entities.

When Can an Accounting Policy Be Changed?

An entity may change an accounting policy only if the change is (IAS 8.14):

• Required by an IFRS standard or IFRIC interpretation, or
• 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, performance, or cash flows.

Crucially, a mere preference for a different policy does not justify a change. The bar is intentionally high to prevent earnings management through arbitrary policy switching.

Retrospective Application — The General Rule

When an accounting policy change occurs voluntarily or is mandated by a new standard (without specific transitional provisions), the default treatment is retrospective application (IAS 8.19). This means:

• The entity adjusts the opening balance of each affected component of equity for the earliest prior period presented (IAS 8.22).
• Comparative prior-period figures are restated as if the new policy had always been applied.
• The cumulative effect is typically recognised as an adjustment to opening retained earnings of the earliest period presented.

If retrospective application is impracticable for a particular prior period — meaning the entity cannot determine the cumulative effect or the period-specific effects after making every reasonable effort — IAS 8.23–25 permits the entity to apply the new policy prospectively from the earliest date practicable. The impracticability threshold is strict and must be genuinely demonstrated, not merely inconvenient.

Mandatory Changes Required by a New Standard

When a new IFRS is adopted, the entity follows any specific transitional provisions included in that standard (IAS 8.19(a)). For example, IFRS 16 included its own transitional rules (modified retrospective or full retrospective), which override IAS 8's default. In the absence of transitional provisions in the new standard, IAS 8's retrospective approach applies.

Disclosure Requirements

Disclosures for an accounting policy change must include (IAS 8.28–30):

• The nature of the change and, for voluntary changes, the reasons why the new policy is more reliable and relevant.
• For current and prior periods, the amount of the adjustment for each financial statement line item affected, and basic and diluted EPS if applicable.
• If retrospective application is impracticable, the circumstances that led to that conclusion and a description of how the change has been applied.
• For future mandatory changes not yet effective: the known or reasonably estimable impact on future financial statements (IAS 8.30).

A key practical challenge is distinguishing a policy change from a change in accounting estimate (covered by IAS 8.32–40), which is applied prospectively. For instance, changing from straight-line to units-of-production depreciation may qualify as a change in estimate rather than a policy change, with significantly different accounting consequences.

Summary

Changes in accounting policies are tightly governed to protect comparability. The default is full retrospective restatement with equity adjustment, limited only by genuine impracticability, and supported by robust disclosures to keep users fully informed.