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| International Accounting standard(IAS) |
What is the International Accounting Standards (IAS-8)? Describes in details:
IAS-8 (International Accounting Standard 8) is a standard issued by the International Accounting Standards Board (IASB) that provides guidelines on accounting policies, changes in accounting estimates, and errors. It ensures consistency in the application of accounting principles and establishes procedures for handling changes in financial reporting.
Key aspects of IAS 8 include:
1.Accounting Policies:
IAS 8 requires that a company must apply consistent accounting policies for similar transactions. These policies should be disclosed in the financial statements, and if a new policy is adopted, the reason for the change must be explained.
2.Changes in Accounting Policies:
A change in accounting policy is allowed only if required by a new IFRS standard or if it results in a more reliable and relevant presentation of financial statements. When a policy change occurs, it must be applied retrospectively, adjusting prior period financial statements as if the new policy had always been in place.
3.Changes in Accounting Estimates:
Unlike accounting policy changes, changes in accounting estimates (such as the useful life of an asset or bad debt provisions) are accounted for prospectively. This means that the effects of the change are recognized in the period of the change and future periods, without adjusting prior period financial statements.
4.Correction of Errors:
Errors in financial statements (such as mathematical mistakes or incorrect application of policies) must be corrected retrospectively. The company should restate prior period financial statements to reflect the correction, unless it is impractical.
5.Disclosure Requirements:
When there is a change in accounting policy or estimate, or when an error is corrected, the company must disclose the nature of the change, the reasons for it, and the impact on the financial statements. If retrospective application is not possible, the company must explain why.
In short, IAS 8 ensures that companies apply consistent accounting policies, account for changes in estimates prospectively, and correct errors retrospectively, all while providing clear disclosures to help users of financial statements understand the impact of these changes.