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Corporate Financial Reporting · Accounting Policies, Changes in Accounting Estimates and Errors (Ind AS 8)

Changes in Accounting Policies under Ind AS 8

Updated 11 October 2026 · Fact-checked

A change in accounting policy under Ind AS 8 is made either on initial application of an Ind AS (follow its transitional provisions) or voluntarily. Without specific transitional provisions, or if voluntary, apply it retrospectively: adjust opening equity and restate comparatives, unless impracticable. Then make the required disclosures.

Understand Changes in Accounting Policies

An accounting policy is a specific principle, basis, convention, rule or practice an entity applies in preparing and presenting financial statements. Examples are the cost formula for inventory or the cost versus revaluation model for PPE. When the policy changes, users must still be able to compare periods.

That is why Ind AS 8 needs retrospective application. This means applying the new policy to transactions, other events and conditions as if it had always been applied. You adjust the opening balance of each affected component of equity for the earliest prior period presented. You also restate the other comparative amounts for each prior period presented.

There are two routes. First, a change from the initial application of an Ind AS follows that Ind AS's specific transitional provisions, if any. Second, if the Ind AS has no transitional provisions for the change, or the change is voluntary, you apply it retrospectively. Early application of an Ind AS is not a voluntary change in policy.

Retrospective application has a limit. It is required except to the extent that it is impracticable to determine either the period-specific effects or the cumulative effect. If you cannot determine the cumulative effect on all prior periods, apply the new policy prospectively from the start of the earliest period practicable. You ignore the part of the cumulative adjustment that arose before that date.

Two special cases. The first-time policy of revaluing assets under Ind AS 16 or Ind AS 38 is dealt with as a revaluation under that Standard, not under Ind AS 8. And where no Ind AS applies, management may use the latest IASB pronouncements; a later change following an amendment of those is a voluntary change.

Key rules to remember

Retrospective application
Apply new policy as if it had always been applied
Adjust opening equity of the earliest prior period presented and restate comparatives for each prior period presented.
Route on initial application of an Ind AS
Follow specific transitional provisions, if any
If none, or if the change is voluntary, apply retrospectively.
Impracticability limit
Retrospective unless period-specific or cumulative effect cannot be determined
If the cumulative effect cannot be determined, apply prospectively from the start of the earliest period practicable.
Early application of an Ind AS
Not a voluntary change in accounting policy
Do not treat it as voluntary.
Revaluation policy
First revaluation under Ind AS 16 or Ind AS 38 is treated as a revaluation, not under Ind AS 8
Do not restate comparatives under Ind AS 8 for it.
Impracticable estimates
Significant estimate that needs hindsight, where information cannot be distinguished, makes retrospective application impracticable
You must distinguish evidence of conditions existing at the transaction date and information available when that period's statements were approved.

How to solve Changes in Accounting Policies questions

Use this order for any question on a change in policy.

  1. 1Identify whether the change is from initial application of an Ind AS or voluntary. Check if the case is a first-time revaluation or early application, which are special.
  2. 2If an Ind AS applies, check for specific transitional provisions and follow them. If none, or if voluntary, plan retrospective application.
  3. 3Check impracticability: can you determine the period-specific effects and the cumulative effect? If not, apply from the earliest period practicable.
  4. 4Compute the effect on each prior period presented and on the opening balance of the earliest period presented. Adjust opening equity (usually retained earnings) and restate comparatives.
  5. 5Compute the current period figures under the new policy. Recompute related items, such as tax effect, if the question gives a rate.
  6. 6Prepare the required disclosures: title of the Ind AS, nature of change, transitional provisions, adjustment per line item and EPS, and amount relating to periods before those presented.
  7. 7State the conclusion clearly, with the paragraph basis.

Quickest way: Three-question screen

When to use it: For MCQs and short theory parts where you must pick the treatment fast.

  1. Q1: Is it a new Ind AS with transitional provisions? If yes, follow them.
  2. Q2: Otherwise or if voluntary, is it retrospective? Yes, unless impracticable.
  3. Q3: Is the cumulative effect undeterminable? Then prospective from the earliest period practicable.
  4. Check for the exceptions: first-time revaluation goes to Ind AS 16 or Ind AS 38, and early application is not voluntary.

Common mistakes in Changes in Accounting Policies

  • Applying every change prospectively

    Students confuse policy changes with changes in estimates.

    Fix: Policy changes are retrospective by default. Prospective application is only for impracticability or where transitional provisions say so.

  • Treating early application of an Ind AS as a voluntary change

    Both are choices by management.

    Fix: Remember that early application is not a voluntary change in accounting policy.

  • Treating the first revaluation of PPE as an Ind AS 8 change needing restatement

    It looks like a change from the cost model.

    Fix: Treat it as a revaluation under Ind AS 16 or Ind AS 38.

  • Adjusting only the current year's profit

    Students skip the opening equity and comparatives.

    Fix: Adjust the opening balance of each affected component of equity for the earliest period presented and restate each prior period presented.

  • Claiming impracticability because the work is hard or costly

    Students read impracticable as inconvenient.

    Fix: Use it only when the effects cannot be determined, such as when data was not collected or a significant estimate needs hindsight.

  • Leaving out disclosures

    Students focus on the numbers.

    Fix: Add the disclosure list: Ind AS title, nature, transitional provisions, line-item and EPS adjustments, and amounts for earlier periods.

Worked examples

Example 1

Sundaram Ltd voluntarily changes its inventory cost formula from FIFO to weighted average in the year ended 31 March 2027. It presents 2025-26 as the comparative year. Inventory was ₹36,00,000 under FIFO and ₹35,00,000 under weighted average at 1 April 2025. It was ₹40,00,000 under FIFO and ₹38,00,000 under weighted average at 31 March 2026. Profit before tax for 2025-26 as reported under FIFO was ₹90,00,000. Purchases are unchanged. Ignore tax. State the adjustment to opening retained earnings at 1 April 2025, the restated 2025-26 profit, and the restated opening retained earnings at 1 April 2026.

Show the solution
  1. The change is voluntary, so apply it retrospectively as if weighted average had always been used. The cumulative effect is determinable, so there is no impracticability.
  2. The earliest prior period presented is 2025-26. Under para 22, adjust the opening balance of equity at 1 April 2025, the start of that period.
  3. Inventory at 1 April 2025 falls from ₹36,00,000 to ₹35,00,000, a reduction of ₹1,00,000. Reduce opening retained earnings at 1 April 2025 by ₹1,00,000.
  4. Restate 2025-26 profit. Opening inventory is ₹1,00,000 lower, so cost of goods sold falls by ₹1,00,000. Closing inventory is ₹2,00,000 lower, so cost of goods sold rises by ₹2,00,000. Net effect on profit is ₹1,00,000 lower.
  5. Restated 2025-26 profit = ₹90,00,000 − ₹1,00,000 = ₹89,00,000. Restated inventory at 31 March 2026 = ₹38,00,000.
  6. Restated opening retained earnings at 1 April 2026 are lower by ₹1,00,000 (adjustment at 1 April 2025) + ₹1,00,000 (reduction in 2025-26 profit) = ₹2,00,000. This equals the inventory difference at 31 March 2026.
  7. Disclose the nature of the change, the adjustment for each line item affected for the current and prior period presented, and the ₹1,00,000 adjustment relating to periods before those presented.

Answer: Reduce opening retained earnings at 1 April 2025 by ₹1,00,000. Restated 2025-26 profit is ₹89,00,000. Opening retained earnings at 1 April 2026 are restated lower by ₹2,00,000.

Example 2

Kaveri Ltd voluntarily changes a policy in 2026-27. It has no records to determine the cumulative effect on periods before 1 April 2025, but it can apply the new policy from 1 April 2025. State the treatment and the disclosure.

Show the solution
  1. The change is voluntary, so the default is retrospective application.
  2. Retrospective application is impracticable for periods before 1 April 2025, because the cumulative effect cannot be determined.
  3. Apply the new policy prospectively from the start of the earliest period practicable, which is 1 April 2025. Disregard the cumulative adjustment arising before that date.
  4. Disclose the circumstances that made retrospective application impracticable, and describe how and from when the policy has been applied.
  5. Also disclose the nature of the change, and the adjustment for the current and each prior period presented, to the extent practicable.

Answer: Apply the policy prospectively from 1 April 2025 and disclose the impracticability circumstances and how and from when it was applied.

Exam tips

  • In MCQs, first check whether it is early application or a first-time revaluation, because these are the trap cases.
  • In numerical questions, always show the adjustment to opening reserves and the restated comparatives, not only the current year.
  • State the paragraph logic in one line: voluntary or no transitional provisions means retrospective, unless impracticable.
  • For theory questions, list disclosures in order, starting with the title of the Ind AS and the nature of the change.
  • Do not mix up policy changes with estimate changes, which are prospective.

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

Changes in Accounting Policies in other exams

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

Changes in Accounting Policies: frequently asked questions

When is a change in accounting policy allowed under Ind AS 8?

A change arises on initial application of an Ind AS, which you handle under its transitional provisions. Otherwise, the change is voluntary and is made retrospectively. The rule requires the change to follow this Standard's treatment.

What is retrospective application?

It means applying a new accounting policy to transactions, events and conditions as if it had always been applied. You adjust opening equity of the earliest prior period presented and restate comparatives.

When is retrospective application impracticable?

It is impracticable when you cannot determine the period-specific effects or the cumulative effect. An example is data not collected in a usable form, or a significant estimate that needs hindsight. Then you apply prospectively from the earliest period practicable.

Do I repeat the disclosures in later years?

No. Financial statements of subsequent periods need not repeat the disclosures about the change.