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ACCA Applied Skills · Financial Reporting · Limitations of interpretation techniques

An analyst compares two companies' financial statements and finds that one has changed an accounting policy in the year, with comparatives restated under IAS 8. What is the main benefit of the restatement for trend analysis?

Retrospective restatement under IAS 8 makes the current and comparative figures consistent, so trends within the entity are not distorted by the policy change. It does not make the entity comparable with other companies or adjust for inflation.

  1. AIt makes the current and prior year figures consistent, so trends are not distorted by the policy changeCorrect
  2. BIt makes the company's ratios identical to those of all competitors
  3. CIt removes the effect of inflation on prior year figures
  4. DIt eliminates the need to consider other entities' policies

Explanation

IAS 8 requires retrospective application of a voluntary policy change, so comparatives are restated as if the new policy had always applied. This gives consistency over time within the entity. It does not align policies with other entities, adjust for inflation, or remove comparability issues between companies.

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