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

Selection and Application of Accounting Policies under Ind AS 8

Updated 11 October 2026 · Fact-checked

Under Ind AS 8, if an Ind AS specifically applies to a transaction, you must use its policy. If none applies, management uses judgement to develop a policy that is relevant and reliable, referring first to similar Ind ASs and the Conceptual Framework. Policies must be applied consistently to similar items.

Understand Selection and Application of Accounting Policies

Accounting policies are the specific principles, bases, conventions, rules and practices an entity applies in preparing and presenting financial statements. Ind AS 8 tells you how to choose them.

The first rule is simple. When an Ind AS specifically applies to a transaction, other event or condition, you determine the policy by applying that Ind AS. The guidance that accompanies the Ind AS is an integral part of it, so that guidance is mandatory too.

If no Ind AS specifically applies, management must use its judgement. The policy developed must give information that is relevant to users' economic decision-making and reliable. Reliable means the statements represent faithfully the financial position, performance and cash flows; reflect economic substance and not merely legal form; are neutral; are prudent; and are complete in all material respects.

While making that judgement, you look at sources in a fixed order. Paragraph 11 sets the mandatory sources in descending order: first, Ind ASs dealing with similar and related issues; second, the definitions, recognition criteria and measurement concepts in the Conceptual Framework. Paragraph 12 then says management may also consider the most recent pronouncements of the IASB, then other standard-setters with a similar conceptual framework, other accounting literature and accepted industry practice. This is allowed only to the extent it does not conflict with paragraph 11 sources.

Finally, consistency. You select and apply policies consistently for similar transactions, events and conditions. The exception is where an Ind AS requires or permits categorisation of items; then you choose a suitable policy for each category and apply it consistently within that category. Also, policies need not be applied if the effect is immaterial, but you must not make or leave uncorrected immaterial departures to achieve a particular presentation.

Key rules to remember

Rule when an Ind AS applies (para 7): Specific Ind AS applies → policy = that Ind AS (with its mandatory guidance); No judgement is needed or allowed to override it.
Judgement when no Ind AS applies (para 10): Policy must give information that is relevant AND reliable; Reliable = faithful representation, substance over form, neutral, prudent, complete in all material respects.
Hierarchy of sources (para 11): (a) Ind ASs on similar and related issues → (b) Conceptual Framework definitions, recognition criteria, measurement concepts; Applied in descending order. These are mandatory to consider.
Other sources (para 12): Latest IASB pronouncements → other standard-setters with similar framework, other accounting literature, accepted industry practice; Permitted (may), only if they do not conflict with para 11 sources.
Consistency (para 13): Same policy for similar items; separate consistent policy per category if an Ind AS permits categorisation; Categorisation must come from an Ind AS, not from management's preference.
Materiality (para 8): Immaterial effect → policy need not be applied; but no immaterial departures to achieve a presentation; Intentional or uncorrected immaterial departures to manage presentation are inappropriate.

How to solve Selection and Application of Accounting Policies questions

Use this order for any question on choosing an accounting policy. It matches the logic of Ind AS 8 and keeps your answer structured for marks.

1Identify the transaction, event or condition and what the question asks: which policy to adopt, or whether the current practice is acceptable.
2Check whether an Ind AS specifically applies. If yes, apply that Ind AS and its mandatory guidance (paras 7 and 9). Stop there.
3If no Ind AS specifically applies, state that management must use judgement to develop a policy that is relevant and reliable (para 10).
4Work down the hierarchy: first Ind ASs on similar and related issues, then the Conceptual Framework definitions, recognition criteria and measurement concepts (para 11).
5Only then, and only if there is no conflict with those sources, mention the optional sources: latest IASB pronouncements, similar-framework standard-setters, other literature and industry practice (para 12).
6Test consistency: are similar items treated alike? Is any categorisation allowed by an Ind AS (para 13)?
7Consider materiality (para 8), then conclude with a clear recommendation and the reason.
8 If the question later involves a change of policy, link to the Changes in Accounting Policies topic.

Quickest way: Four-gate check for policy selection

When to use it: Use it for MCQs and short case questions where you must pick the correct source or say if a practice is acceptable.

Gate 1: Does a specific Ind AS apply? Yes means use it.
Gate 2: If not, are there Ind ASs on similar or related issues? Use them first.
Gate 3: Then the Conceptual Framework. IASB and industry practice come last and are optional.
Gate 4: Is the policy applied consistently to similar items, with categories only if an Ind AS permits?

Common mistakes in Selection and Application of Accounting Policies

Treating industry practice or IASB pronouncements as the first source when no Ind AS applies.
Students remember the list of sources but not the order.
Fix: Remember: Ind AS on similar issues, then Conceptual Framework (para 11, mandatory). IASB and industry practice (para 12) only come after and must not conflict.
Saying para 12 sources are compulsory.
The word 'shall' in para 11 gets mixed up with 'may' in para 12.
Fix: Para 11: management shall refer to and consider. Para 12: management may also consider.
Using management judgement even though an Ind AS specifically applies.
Students see 'judgement' and assume it is always allowed.
Fix: Judgement under para 10 arises only in the absence of a specifically applicable Ind AS.
Applying different policies to similar transactions because they are in different departments or because it suits the results.
Students think consistency means only year-to-year consistency.
Fix: Para 13 requires the same policy for similar transactions at the same time too, unless an Ind AS permits categorisation.
Thinking immaterial departures from Ind AS can always be ignored.
Para 8 first sentences are remembered but not the last one.
Fix: Policies need not be applied if immaterial, but it is inappropriate to make or leave uncorrected immaterial departures to achieve a particular presentation.
Ignoring the guidance accompanying an Ind AS.
Students focus on the main text of the standard.
Fix: Guidance given with an Ind AS is an integral part and mandatory (para 9).

Worked examples

Example 1

Sundaram Textiles Ltd, an Indian company, enters a type of transaction for which no Ind AS specifically applies. The finance head proposes to follow what other textile companies in Tamil Nadu do, without looking at any Ind AS. Advise on how the policy should be selected.

Show the solution

No Ind AS specifically applies, so para 10 applies: management uses judgement to develop a policy giving relevant and reliable information.
Reliability requires faithful representation, substance over form, neutrality, prudence and completeness in all material respects.
Para 11 requires management first to refer to and consider Ind ASs dealing with similar and related issues.
Next, management must consider the definitions, recognition criteria and measurement concepts in the Conceptual Framework.
Industry practice is a para 12 source. It may be considered, but only to the extent it does not conflict with the para 11 sources.

Answer: The proposal is not acceptable as made. Sundaram Textiles must first look at Ind ASs on similar and related issues, then the Conceptual Framework. Industry practice can be considered afterwards, only if it does not conflict with those sources.

Example 2

Which of the following is the correct order of sources management must follow when no Ind AS specifically applies? (A) Industry practice, IASB pronouncements, Conceptual Framework (B) Conceptual Framework, Ind AS on similar issues, industry practice (C) Ind AS on similar and related issues, Conceptual Framework, then optionally IASB and other sources (D) IASB pronouncements, Ind AS on similar issues, Conceptual Framework

Show the solution

Para 11 gives the mandatory descending order: (a) Ind ASs on similar and related issues, (b) Conceptual Framework.
Para 12 adds optional sources (IASB, similar-framework standard-setters, other literature, industry practice), subject to no conflict with para 11.
Option A and D put optional sources first, which is wrong.
Option B reverses (a) and (b) and places industry practice as a mandatory step.
Option C matches paras 11 and 12.

Answer: Option C.

Exam tips

In MCQs, watch the verbs: 'shall' for para 11 sources, 'may' for para 12 sources.
In case questions, write the order of sources explicitly and say why each lower source is not reached or is allowed.
Always check first whether an Ind AS specifically applies; many case answers are decided at this step.
Mention materiality and the 'no immaterial departures to achieve a presentation' point when the case suggests selective non-compliance.
Link the answer to consistency: state whether similar items are treated alike and whether any Ind AS permits categorisation.

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

Selection and Application of 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.

Selection and Application of Accounting Policies: frequently asked questions

What is the hierarchy of guidance in Ind AS 8?

When no Ind AS specifically applies, management first considers Ind ASs dealing with similar and related issues, then the Conceptual Framework definitions, recognition criteria and measurement concepts. It may also consider IASB pronouncements, similar-framework standard-setters, other literature and accepted industry practice, if they do not conflict with the first two.

Is the guidance accompanying an Ind AS mandatory?

Yes. Ind ASs are accompanied by guidance that is an integral part of the standard. Such guidance is mandatory.

Can an entity use different policies for similar transactions?

Not normally. Policies must be applied consistently for similar transactions, events and conditions. The exception is where an Ind AS requires or permits categorisation of items; then a suitable policy is chosen and applied consistently to each category.

Do I need to apply an Ind AS policy if the effect is immaterial?

Policies need not be applied when the effect is immaterial. However, it is inappropriate to make, or leave uncorrected, immaterial departures from Ind ASs to achieve a particular presentation of financial position, performance or cash flows.