21.1 IAS 8
IAS 8 addresses the selection of accounting policies, changes in accounting policies, changes in accounting estimates, and corrections of errors. The standard is designed to ensure that the financial information is both relevant and reliable, but is also comparable with previous periods and with other entities. The standard is, thus, consistent with the objectives of the Conceptual Framework.
The standard indicates that the initial selection of accounting policies should follow the principles and guidance included in the IFRS, unless there is no IFRS that relates to the transaction in question. In such a case, management must apply judgment in selecting accounting policies that are both relevant and reliable. It is interesting that while the discussion of accounting policy choice in IAS 8 is generally consistent with the basic principles of the conceptual framework, an additional descriptor “prudent” is included. This would seem to place an additional level of responsibility on management to choose accounting policies that are not misleading. The initial discussion also states that accounting policies should be applied consistently for similar transactions, events, and conditions.
IAS 8 further describes three situations where changes to accounting information may be required:
- Changes in accounting policies
- Changes in accounting estimates
- Corrections of errors
We will examine each of these individually to determine the appropriate accounting treatment.
