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CMA Final · Corporate Financial Reporting

Ind AS 8: Accounting Policies, Estimates and Errors

Ind AS 8 tells you how to select accounting policies and how to account for three things: changes in policy, changes in estimates and prior period errors. Policy changes and errors are applied retrospectively. Estimate changes are applied prospectively. Decide which of the three you face, then apply that treatment.

What this chapter covers

This chapter is about change and correction in financial statements. Ind AS 8 applies in selecting and applying accounting policies, and in accounting for changes in accounting policies, changes in accounting estimates and corrections of prior period errors. Almost every question asks you to classify a situation first and then apply the matching treatment.

The chapter is short, but it links to the rest of Corporate Financial Reporting. When an Ind AS specifically applies to a transaction, event or condition, the policy is determined by applying that Ind AS. So the chapter sits behind every other standard you study. It also links to Ind AS 1 for presentation of restated balance sheets, to Ind AS 12 for the tax effects, and to Ind AS 2, 16 and 38 where estimates such as useful life and residual value change.

In the exam, expect a 2-mark MCQ on classification and a numerical on restating comparatives or adjusting opening retained earnings. A case scenario may combine this with other standards.

This chapter gives you marks for little effort. The concepts are few, the rules are clear, and the questions repeat the same pattern: classify, then treat. Section A has 15 MCQs of 2 marks each, and a classification question here is a quick, safe mark if your definitions are exact. In the written section, a short restatement working can be scored fully if you show the logic step by step. The skill also helps you in other chapters, because depreciation changes, provisions and inventory valuation errors all use these rules.

Accounting Policies, Changes in Accounting Estimates and Errors (Ind AS 8): topics in the order to study them

  1. 1Objective and Scope of Ind AS 8Start here to learn what the standard covers and what it leaves to other standards, such as the tax effects under Ind AS 12.
  2. 2Selection and Application of Accounting PoliciesYou need the policy hierarchy before you can understand what counts as a change in policy.
  3. 3Changes in Accounting PoliciesNext learn when a change is allowed and how retrospective application works, including the impracticability limit.
  4. 4Changes in Accounting EstimatesStudy this after policies, so you can tell a policy change from an estimate change and apply the prospective treatment.
  5. 5Prior Period Errors and Retrospective RestatementTake this last because it uses the retrospective logic you learned earlier and carries the most numerical work.

How to prepare Accounting Policies, Changes in Accounting Estimates and Errors (Ind AS 8)

Prepare this chapter as a classification skill first and a calculation skill second. Aim to finish it in a few focused sessions, then revisit it often.

  1. Read the key definitions closely: accounting policies, change in estimate, prior period errors and retrospective restatement. Learn the wording of the prior period error definition, including that the information was available when the statements were approved and could reasonably have been obtained.
  2. Write a one-page table on paper with three columns: policy change, estimate change, error. For each, note the treatment: retrospective, prospective, or restate as if the error never occurred.
  3. Learn the order of reasoning for any case: is it a policy, an estimate or an error? Then apply the matching rule. Practise this on short scenarios until the call is automatic.
  4. Practise numericals on restating comparatives. Adjust the opening balance of the earliest period presented, restate each affected line item, and show the tax effect as per Ind AS 12.
  5. Study the impracticability rule. Know that if data was not collected in a way that allows restatement, it may be impracticable, and that estimates for prior periods must reflect circumstances that existed at that time.
  6. Finish with MCQs and previous papers. Check each wrong answer against the definition, not against memory of the answer.

Common mistakes in Accounting Policies, Changes in Accounting Estimates and Errors (Ind AS 8)

  • Treating a change in estimate as a change in policy and restating prior years.

    Fix: Ask whether the basis of recognition or measurement has changed, or only the figure. A revised useful life or residual value is an estimate and is applied prospectively.

  • Calling every past misstatement a prior period error.

    Fix: Check the definition. It must arise from failure to use, or misuse of, reliable information that was available when the statements were approved and could reasonably have been obtained.

  • Adjusting only the current year profit when restating an error.

    Fix: Restate the comparatives as if the error never occurred. Adjust the opening balance of the earliest period presented where needed.

  • Ignoring the tax effect of the correction.

    Fix: Add a line in every working for the tax effect, as accounted for under Ind AS 12, if the question gives a tax rate.

  • Applying a new policy retrospectively when it is impracticable, or never mentioning impracticability.

    Fix: Learn the impracticability limit. State it in theory answers and apply the allowed alternative in numericals when data cannot be recreated.

  • Choosing a policy freely when a specific Ind AS applies.

    Fix: Remember that where an Ind AS specifically applies to an item, the policy is determined by applying that Ind AS.

Last-day revision: Accounting Policies, Changes in Accounting Estimates and Errors (Ind AS 8)

  • Ind AS 8 covers selecting policies, policy changes, estimate changes and prior period error corrections.
  • Where an Ind AS specifically applies to an item, the policy is determined by applying that Ind AS.
  • Guidance accompanying an Ind AS that is integral to it is mandatory.
  • Prior period errors arise from failure to use, or misuse of, reliable information that was available and could reasonably have been obtained.
  • Errors include mathematical mistakes, mistakes in applying policies, oversights, misinterpretations of facts and fraud.
  • Retrospective restatement corrects recognition, measurement and disclosure as if the error had never occurred.
  • Policy changes and errors are dealt with retrospectively; estimate changes are prospective.
  • Retrospective application may be impracticable if data was not collected in a usable way.
  • Estimates for prior periods must reflect the circumstances that existed when the event occurred.
  • Tax effects of corrections and retrospective adjustments follow Ind AS 12.
  • Ind AS 8 paragraph 12 allows management to first consider the latest IASB pronouncements when no Ind AS applies.
  • Always classify first, then apply the treatment.

Accounting Policies, Changes in Accounting Estimates and Errors (Ind AS 8) practice questions

Accounting Policies, Changes in Accounting Estimates and Errors (Ind AS 8) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Accounting Policies, Changes in Accounting Estimates and Errors (Ind AS 8): frequently asked questions

How do I tell a change in accounting policy from a change in estimate?

A policy change alters the basis of recognising or measuring an item. An estimate change revises a figure within the same basis, such as useful life or a provision amount. Policy changes are applied retrospectively and estimate changes prospectively.

What is a prior period error under Ind AS 8?

It is an omission or misstatement in prior period statements from a failure to use, or misuse of, reliable information. The information must have been available when the statements were approved and reasonably obtainable. It includes mathematical mistakes, wrong application of policies, oversights, misinterpretation of facts and fraud.

What does retrospective restatement mean?

It means correcting the recognition, measurement and disclosure of amounts as if the prior period error had never occurred. You restate the comparatives and adjust the opening balances of the earliest period presented.

Can retrospective application ever be skipped?

Yes, when it is impracticable. For example, data may not have been collected in a way that allows restatement and it may be impracticable to recreate it. The standard still expects prior period estimates to reflect the circumstances that existed at the time.

Which standard covers the tax effect of corrections?

The tax effects of corrections of prior period errors and of retrospective adjustments for policy changes are accounted for and disclosed under Ind AS 12, Income Taxes.