International Accounting Standard 8 Basis of Preparation of Financial Statements (IAS 8) is set out in paragraphs 1–56 and the Appendix. All the paragraphs have equal authority but retain the IASC format of the Standard when it was adopted by the IASB. IAS 8 should be read in the context of its objective and the Basis for Conclusions, the Preface to IFRS Accounting Standards and the Conceptual Framework for Financial Reporting.
1 | The objective of this Standard is to enhance the relevance and reliabilityE1 of an entity’s financial statements, and the comparability of those financial statements over time and with financial statements of other entities, by prescribing the basis of preparation of financial statements which includes:
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| E1 | [The term ‘faithful representation’, which was used in the Conceptual Framework issued in 2010 and is also used in the revised version of the Conceptual Framework issued in 2018, encompasses the main characteristics that the Framework called ‘reliability’ (refer Conceptual Framework paragraphs 2.12–2.19 and Basis for Conclusions paragraphs BC2.21–BC2.31).] |
2 | [Deleted] |
3 | This Standard shall be applied in determining the basis of preparation of financial statements, including selecting and applying accounting policies, and accounting for changes in accounting policies, changes in accounting estimates and corrections of prior period errors. |
3A | IAS 34 Interim Financial Reporting sets out the requirements for the presentation and disclosure of condensed interim financial statements. Paragraphs 6A–6N of this Standard also apply to such interim financial statements. |
4 | The tax effects of corrections of prior period errors and of retrospective adjustments made to apply changes in accounting policies are accounted for and disclosed in accordance with IAS 12 Income Taxes. |
5 | The following terms are used in this Standard with the meanings specified: Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements. Accounting estimates are monetary amounts in financial statements that are subject to measurement uncertainty. IFRS Accounting Standards are accounting standards issued by the International Accounting Standards Board. They comprise:
IFRS Accounting Standards were previously known as International Financial Reporting Standards, IFRS, IFRSs and IFRS Standards. Material information is defined in Appendix A of IFRS 18 Presentation and Disclosure in Financial Statements. Material is used in this Standard with the same meaning. [Note:IFRS Practice Statement 2 Making Materiality Judgements (Practice Statement) provides reporting entities with guidance on making materiality judgements when preparing general purpose financial statements in accordance with IFRS Standards. The Practice Statement is non-mandatory guidance developed by the International Accounting Standards Board (Board). It is not a Standard. Therefore, its application is not required to state compliance with IFRS Standards]
Prior period errors are omissions from, and misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:
Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud. Retrospective application is applying a new accounting policy to transactions, other events and conditions as if that policy had always been applied. Retrospective restatement is correcting the recognition, measurement and disclosure of amounts of elements of financial statements as if a prior period error had never occurred. Impracticable [Refer:paragraphs 50–53 and Basis for Conclusions paragraphs BC25–BC27] Applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so. For a particular prior period, it is impracticable to apply a change in an accounting policy retrospectively or to make a retrospective restatement to correct an error if:
Prospective application of a change in accounting policy and of recognising the effect of a change in an accounting estimate, respectively, are:
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6 | [Deleted] |
6A | Financial statements shall present fairly the financial position, financial performance and cash flows of an entity. Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Conceptual Framework for Financial Reporting (Conceptual Framework). The application of IFRSs, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation. [Refer:Conceptual Framework paragraphs 1.12–1.20, 2.12–2.13, 4.1–4.2, 5.6–5.11 and IAS 7 paragraph 6] |
6B | An entity whose financial statements comply with IFRS Accounting Standards shall make an explicit and unreserved statement of such compliance in the notes. An entity shall not describe financial statements as complying with IFRS Accounting Standards unless they comply with all the requirements of IFRS Accounting Standards. [Refer:IAS 34 paragraph 2]
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6C | In virtually all circumstances, an entity achieves a fair presentation by compliance with applicable IFRSs. A fair presentation also requires an entity:
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6D | An entity cannot rectify inappropriate accounting policies either by disclosure of the accounting policies used or by notes or explanatory material. |
6E | In the extremely rare circumstances in which management concludes that compliance with a requirement in an IFRS would be so misleading that it would conflict with the objective of financial statements set out in the Conceptual Framework, the entity shall depart from that requirement in the manner set out in paragraph 6F if the relevant regulatory framework requires, or otherwise does not prohibit, such a departure. |
6F | When an entity departs from a requirement of an IFRS in accordance with paragraph 6E, it shall disclose:
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6G | When an entity has departed from a requirement of an IFRS in a prior period, and that departure affects the amounts recognised in the financial statements for the current period, it shall make the disclosures set out in paragraphs 6F(c)–6F(d). |
6H | Paragraph 6G applies, for example, when an entity departed in a prior period from a requirement in an IFRS for the measurement of assets or liabilities and that departure affects the measurement of changes in assets and liabilities recognised in the current period’s financial statements. |
6I | In the extremely rare circumstances in which management concludes that compliance with a requirement in an IFRS would be so misleading that it would conflict with the objective of financial statements set out in the Conceptual Framework, but the relevant regulatory framework prohibits departure from the requirement, the entity shall, to the maximum extent possible, reduce the perceived misleading aspects of compliance by disclosing:
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6J | For the purpose of paragraphs 6E–6I, an item of information would conflict with the objective of financial statements when it does not represent faithfully the transactions, other events and conditions that it either purports to represent or could reasonably be expected to represent and, consequently, it would be likely to influence economic decisions made by users of financial statements. When assessing whether complying with a specific requirement in an IFRS would be so misleading that it would conflict with the objective of financial statements set out in the Conceptual Framework, management considers: [Refer:Conceptual Framework paragraphs 1.2–1.10, 2.12–2.13 and 2.36]
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6K | When preparing financial statements, management shall make an assessment of an entity’s ability to continue as a going concern. An entity shall prepare financial statements on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so.E2 When management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, the entity shall disclose those uncertainties.E3,E4 When an entity does not prepare financial statements on a going concern basis, it shall disclose that fact, together with the basis on which it prepared the financial statements and the reason why the entity is not regarded as a going concern. [Refer:Conceptual Framework paragraph 3.9]
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| E2 | [IFRIC® Update, June 2021, Agenda Decision, ‘IAS 10 Events after the Reporting Period—Preparation of Financial Statements when an Entity is No Longer a Going Concern’ The Committee received a request about the accounting applied by an entity that is no longer a going concern (as described in paragraph 25 of IAS 1 Presentation of Financial Statements [now paragraph 6K of IAS 8 Basis of Preparation of Financial Statements]). The request asked whether such an entity:
... For the reasons noted above, the Committee decided not to add a standard-setting project on these matters to the work plan. [The full text of the agenda decision is reproduced after paragraph 14 of IAS 10.]] |
| E3 | [IFRIC Update, July 2010, Agenda Decision, ‘Going concern disclosure’ The Committee received a request for guidance on the disclosure requirements in IAS 1 [now IAS 8 Basis of Preparation of Financial Statements] on uncertainties related to an entity’s ability to continue as a going concern. How an entity applies the disclosure requirements in paragraph 25 of IAS 1 [now paragraph 6K of IAS 8] requires the exercise of professional judgement. The Committee noted that paragraph 25 requires that an entity shall disclose ‘material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern’. The Committee also noted that for this disclosure to be useful it must identify that the disclosed uncertainties may cast significant doubt upon the entity’s ability to continue as a going concern. The Committee noted that IAS 1 provides sufficient guidance on the disclosure requirements on uncertainties related to an entity’s ability to continue as a going concern and that it does not expect diversity in practice. Therefore, the Committee decided not to add the issue to its agenda.] |
| E4 | [IFRIC® Update, July 2014, Agenda Decision, ‘IAS 1 Presentation of Financial Statements—disclosure requirements relating to assessment of going concern’ The Interpretations Committee received a submission requesting clarification about the disclosures required in relation to material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern. The Interpretations Committee proposed to the IASB that it should make a narrow-scope amendment to change the disclosure requirements in IAS 1 [now IAS 8 Basis of Preparation of Financial Statements] in response to this issue. At its meeting in November 2013 the IASB discussed the issue and considered amendments proposed by the staff, but decided not to proceed with these amendments and removed this topic from its agenda. Consequently, the Interpretations Committee removed the topic from its agenda. The staff reported the results of the IASB’s discussion to the Interpretations Committee. When considering this feedback about the IASB’s decision, the Interpretations Committee discussed a situation in which management of an entity has considered events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern. Having considered all relevant information, including the feasibility and effectiveness of any planned mitigation, management concluded that there are no material uncertainties that require disclosure in accordance with paragraph 25 of IAS 1 [now paragraph 6K of IAS 8]. However, reaching the conclusion that there was no material uncertainty involved significant judgement. The Interpretations Committee observed that paragraph 122 of IAS 1 [now paragraph 27G of IAS 8] requires disclosure of the judgements made in applying the entity’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements. The Interpretations Committee also observed that in the circumstance discussed, the disclosure requirements of paragraph 122 of IAS 1 would apply to the judgements made in concluding that there remain no material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern.] |
6L | In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period. [Refer:IAS 10 paragraphs 14–16] The degree of consideration depends on the facts in each case. When an entity has a history of profitable operations and ready access to financial resources, the entity may reach a conclusion that the going concern basis of accounting is appropriate without detailed analysis. In other cases, management may need to consider a wide range of factors relating to current and expected profitability, debt repayment schedules and potential sources of replacement financing before it can satisfy itself that the going concern basis is appropriate. |
6M | An entity shall prepare its financial statements, except for cash flow information, using the accrual basis of accounting. [Refer:Conceptual Framework paragraphs 1.17–1.19] |
6N | When the accrual basis of accounting is used, an entity recognises items as assets, liabilities, equity, income and expenses (the elements of financial statements) when they satisfy the definitions and recognition criteria for those elements in the Conceptual Framework. [Refer:Conceptual Framework paragraphs 4.1–4.2 and 5.6–5.17] |
| Disclosure of basis of preparation of financial statements [text block] Disclosure | Text block | 800500, 811000 |
7 | When an IFRS specifically applies to a transaction, other event or condition, the accounting policy or policies applied to that item shall be determined by applying the IFRS.E5 |
| E5 | [IFRIC® Update, January 2018, Agenda Decision, ‘Contributing property, plant and equipment to an associate (IAS 28 Investments in Associates and Joint Ventures)’ The Committee received a request about how an entity accounts for a transaction in which it contributes property, plant and equipment (PPE) to a newly formed associate in exchange for shares in the associate… The request asked… about the application of IFRS Standards to transactions involving entities under common control (common control transactions)—ie whether IFRS Standards provide a general exception or exemption from applying the requirements in a particular Standard to common control transactions (Question A)… [In responding to Question A, the Committee stated that] Paragraph 7 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors [now IAS 8 Basis of Preparation of Financial Statements] requires an entity to apply an IFRS Standard to a transaction when that Standard applies specifically to the transaction. The Committee observed, therefore, that unless a Standard specifically excludes common control transactions from its scope, an entity applies the applicable requirements in the Standard to common control transactions… [The full text of the agenda decision is reproduced after paragraph 30 of IAS 28.]] |
8 | IFRSs set out accounting policies that the IASB has concluded result in financial statements containing relevant [Refer:Conceptual Framework paragraphs 2.6-2.11] and reliableE6 information about the transactions, other events and conditions to which they apply. Those policies need not be applied when the effect of applying them is immaterial. [Refer:Basis for Conclusions paragraphs BC20–BC22] However, it is inappropriate to make, or leave uncorrected, immaterial departures from IFRSs to achieve a particular presentation of an entity’s financial position, financial performance or cash flows. |
| E6 | [The term ‘faithful representation’, which was used in the Conceptual Framework issued in 2010 and is also used in the revised version of the Conceptual Framework issued in 2018, encompasses the main characteristics that the Framework called ‘reliability’ (refer Conceptual Framework paragraphs 2.12–2.19 and Basis for Conclusions paragraphs BC2.21–BC2.31).] |
9 | IFRSs are accompanied by guidance to assist entities in applying their requirements. All such guidance states whether it is an integral part of IFRSs. Guidance that is an integral part of the IFRSs is mandatory. Guidance that is not an integral part of the IFRSs does not contain requirements for financial statements. |
10 | In the absence of an IFRS that specifically applies to a transaction, other event or condition, management shall use its judgement in developing and applying an accounting policy that results in information that is:
[Note:The IFRS Interpretations Committee March 2017 Agenda Decision on Commodity Loans stated that “…The Committee also observed that the requirements in paragraph 112(c) of IAS 1 Presentation of Financial Statements [now paragraph 113(c) of IFRS 18 Presentation and Disclosure in Financial Statements] are relevant if an entity develops an accounting policy applying paragraphs 10 and 11 of IAS 8 for a commodity loan transaction such as that described in the submission. In applying these requirements, an entity considers whether additional disclosures are needed to provide information relevant to an understanding of the accounting for, and risks associated with, such commodity loan transactions…”]
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| E7 | [The term ‘faithful representation’, which was used in the Conceptual Framework issued in 2010 and is also used in the revised version of the Conceptual Framework issued in 2018, encompasses the main characteristics that the Framework called ‘reliability’ (refer Conceptual Framework paragraphs 2.12–2.19 and Basis for Conclusions paragraphs BC2.21–BC2.31).] |
11 | In making the judgement described in paragraph 10, management shall refer to, and consider the applicability of, the following sources in descending order:E8
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| E8 | [IFRIC® Update, January 2019, Agenda Decision, ‘IAS 37 Provisions, Contingent Liabilities and Contingent Assets—Deposits relating to taxes other than income tax’ The Committee received a request about how to account for deposits relating to taxes that are outside the scope of IAS 12 Income Taxes (ie deposits relating to taxes other than income tax). In the fact pattern described in the request, an entity and a tax authority dispute whether the entity is required to pay the tax. The tax is not an income tax, so it is not within the scope of IAS 12. Any liability or contingent liability to pay the tax is instead within the scope of IAS 37. Taking account of all available evidence, the preparer of the entity’s financial statements judges it probable that the entity will not be required to pay the tax—it is more likely than not that the dispute will be resolved in the entity’s favour. Applying IAS 37, the entity discloses a contingent liability and does not recognise a liability. To avoid possible penalties, the entity has deposited the disputed amount with the tax authority. Upon resolution of the dispute, the tax authority will be required to either refund the tax deposit to the entity (if the dispute is resolved in the entity’s favour) or use the deposit to settle the entity’s liability (if the dispute is resolved in the tax authority’s favour). Whether the tax deposit gives rise to an asset, a contingent asset or neither The Committee observed that if the tax deposit gives rise to an asset, that asset may not be clearly within the scope of any IFRS Standard. Furthermore, the Committee concluded that no IFRS Standard deals with issues similar or related to the issue that arises in assessing whether the right arising from the tax deposit meets the definition of an asset. Accordingly, applying paragraphs 10–11 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors [now IAS 8 Basis of Preparation of Financial Statements], the Committee referred to the two definitions of an asset in IFRS literature—the definition in the Conceptual Framework for Financial Reporting issued in March 2018 and the definition in the previous Conceptual Framework that was in place when many existing IFRS Standards were developed. The Committee concluded that the right arising from the tax deposit meets either of those definitions. The tax deposit gives the entity a right to obtain future economic benefits, either by receiving a cash refund or by using the payment to settle the tax liability. The nature of the tax deposit—whether voluntary or required—does not affect this right and therefore does not affect the conclusion that there is an asset. The right is not a contingent asset as defined by IAS 37 because it is an asset, and not a possible asset, of the entity. Consequently, the Committee concluded that in the fact pattern described in the request the entity has an asset when it makes the tax deposit to the tax authority. Recognising, measuring, presenting and disclosing the tax deposit In the absence of a Standard that specifically applies to the asset, an entity applies paragraphs 10–11 of IAS 8 in developing and applying an accounting policy for the asset. The entity’s management uses its judgement in developing and applying a policy that results in information that is relevant to the economic decision-making needs of users of financial statements and reliable. The Committee noted that the issues that need to be addressed in developing and applying an accounting policy for the tax deposit may be similar or related to those that arise for the recognition, measurement, presentation and disclosure of monetary assets. If this is the case, the entity’s management would refer to requirements in IFRS Standards dealing with those issues for monetary assets. The Committee concluded that the requirements in IFRS Standards and concepts in the Conceptual Framework for Financial Reporting provide an adequate basis for an entity to account for deposits relating to taxes other than income tax. Consequently, the Committee decided not to add this matter to its standard-setting agenda.] |
| E9 | [IFRIC® Update, March 2011, Agenda Decision, ‘IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors—application of the IAS 8 hierarchy’ IAS 8 requires management to use judgement in developing and applying an accounting policy that results in information that is relevant and reliable, in the absence of an IFRS that specifically applies to a transaction. IAS 8 specifies that management shall refer to and consider the applicability of requirements in IFRSs dealing with similar and related issues. The Interpretations Committee received a question as to whether it could be appropriate to consider only certain aspects of an IFRS being analogised to, or whether all aspects of the IFRS being analogised to would be required to be applied. The Committee observed that when management develops an accounting policy through analogy to an IFRS dealing with similar and related matters, it needs to use its judgement in applying all aspects of the IFRS that are applicable to the particular issue. The Committee concluded that the process for developing accounting policies by analogy does not need to be clarified in paragraphs 10–12 of IAS 8 because the current guidance is sufficient. Consequently, the Committee decided that this issue should not be added to its agenda.] |
12 | In making the judgement described in paragraph 10, management may also consider the most recent pronouncements of other standard‑setting bodies that use a similar conceptual framework to develop accounting standards, other accounting literature and accepted industry practices, to the extent that these do not conflict with the sources in paragraph 11. |
13 | An entity shall select and apply its accounting policies consistently [Refer:Conceptual Framework paragraphs 2.24–2.29] for similar transactions, other events and conditions, unless an IFRS specifically requires or permits categorisation of items for which different policies may be appropriate. [Refer:for example, IAS 16 paragraph 29 for classes of property, plant and equipment and IAS 38 paragraph 72 for intangible assets] If an IFRS requires or permits such categorisation, an appropriate accounting policy shall be selected and applied consistently to each category. |
14 | An entity shall change an accounting policy only if the change:
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| E10 | [The term ‘faithful representation’, which was used in the Conceptual Framework issued in 2010 and is also used in the revised version of the Conceptual Framework issued in 2018, encompasses the main characteristics that the Framework called ‘reliability’ (refer Conceptual Framework paragraphs 2.12–2.19 and Basis for Conclusions paragraphs BC2.21–BC2.31).] |
15 | Users of financial statements [Refer:Conceptual Framework paragraphs 1.2-1.10 and 2.36] need to be able to compare [Refer:Conceptual Framework paragraphs 2.24-2.29] the financial statements of an entity over time to identify trends in its financial position, financial performance and cash flows. Therefore, the same accounting policies are applied within each period and from one period to the next unless a change in accounting policy meets one of the criteria in paragraph 14. |
16 | The following are not changes in accounting policies:
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17 | The initial application of a policy to revalue assets in accordance with IAS 16 Property, Plant and Equipment or IAS 38 Intangible Assets is a change in an accounting policy to be dealt with as a revaluation in accordance with IAS 16 [Refer:IAS 16 paragraphs 31–42] or IAS 38, [Refer:IAS 38 paragraphs 75–87] rather than in accordance with this Standard. |
18 | Paragraphs 19–31 do not apply to the change in accounting policy described in paragraph 17. |
19 | Subject to paragraph 23:
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20 | For the purpose of this Standard, early application of an IFRS is not a voluntary change in accounting policy. |
21 | In the absence of an IFRS that specifically applies to a transaction, other event or condition, management may, in accordance with paragraph 12, apply an accounting policy from the most recent pronouncements of other standard‑setting bodies that use a similar conceptual framework to develop accounting standards. If, following an amendment of such a pronouncement, the entity chooses to change an accounting policy, that change is accounted for and disclosed as a voluntary change in accounting policy. |
22 | Subject to paragraph 23, when a change in accounting policy is applied retrospectively in accordance with paragraph 19(a) or (b), the entity shall adjust the opening balance of each affected component of equity for the earliest prior period presented and the other comparative amounts [Refer:IFRS 18 paragraphs 31–40 and B13–B15] disclosed for each prior period presented as if the new accounting policy had always been applied. |
23 | When retrospective application is required by paragraph 19(a) or (b), a change in accounting policy shall be applied retrospectively except to the extent that it is impracticable [Refer:paragraphs 5 (definition of impracticable) and 50–53)] to determine either the period‑specific effects or the cumulative effect of the change. |
24 | When it is impracticable [Refer:paragraphs 5 (definition of impracticable) and 50–53)] to determine the period‑specific effects of changing an accounting policy on comparative information [Refer:IFRS 18 paragraphs 31–40 and B13–B15] for one or more prior periods presented, the entity shall apply the new accounting policy to the carrying amounts of assets and liabilities as at the beginning of the earliest period for which retrospective application is practicable, which may be the current period, and shall make a corresponding adjustment to the opening balance of each affected component of equity for that period. |
25 | When it is impracticable [Refer:paragraphs 5 (definition of impracticable) and 50–53)] to determine the cumulative effect, at the beginning of the current period, of applying a new accounting policy to all prior periods, the entity shall adjust the comparative information [Refer:IFRS 18 paragraphs 31–40 and B13–B15] to apply the new accounting policy prospectively from the earliest date practicable. |
26 | When an entity applies a new accounting policy retrospectively, it applies the new accounting policy to comparative information [Refer:IFRS 18 paragraphs 31–40 and B13–B15] for prior periods as far back as is practicable. Retrospective application to a prior period is not practicable unless it is practicable to determine the cumulative effect on the amounts in both the opening and closing statements of financial position for that period. The amount of the resulting adjustment relating to periods before those presented in the financial statements is made to the opening balance of each affected component of equity of the earliest prior period presented. Usually the adjustment is made to retained earnings. However, the adjustment may be made to another component of equity (for example, to comply with an IFRS). Any other information about prior periods, such as historical summaries of financial data, is also adjusted as far back as is practicable. |
27 | When it is impracticable [Refer:paragraphs 5 (definition of impracticable) and 50–53)] for an entity to apply a new accounting policy retrospectively, because it cannot determine the cumulative effect of applying the policy to all prior periods, the entity, in accordance with paragraph 25, applies the new policy prospectively from the start of the earliest period practicable. It therefore disregards the portion of the cumulative adjustment to assets, liabilities and equity arising before that date. Changing an accounting policy is permitted even if it is impracticable to apply the policy prospectively for any prior period. Paragraphs 50–53 provide guidance on when it is impracticable to apply a new accounting policy to one or more prior periods. |
27A | An entity shall disclose material accounting policy information (see paragraph 5). Accounting policy information is material if, when considered together with other information included in an entity’s financial statements, it can reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements.
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27B | Accounting policy information that relates to immaterial transactions, other events or conditions is immaterial and need not be disclosed. Accounting policy information may nevertheless be material because of the nature of the related transactions, other events or conditions, even if the amounts are immaterial. However, not all accounting policy information relating to material transactions, other events or conditions is itself material. |
27C | Accounting policy information is expected to be material if users of an entity’s financial statements would need it to understand other material information in the financial statements. For example, an entity is likely to consider accounting policy information material to its financial statements if that information relates to material transactions, other events or conditions and:
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27D | Accounting policy information that focuses on how an entity has applied the requirements in the IFRSs to its own circumstances provides entity-specific information that is more useful to users of financial statements than standardised information, or information that only duplicates or summarises the requirements of the IFRSs. |
27E | If an entity discloses immaterial accounting policy information, such information shall not obscure material accounting policy information. |
27F | An entity’s conclusion that accounting policy information is immaterial does not affect the related disclosure requirements set out in other IFRSs. |
27G | An entity shall disclose, along with its material accounting policy information or other notes, the judgements, apart from those involving estimations (see paragraph 31A), that management has made in the process of applying the entity’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements.E11
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| E11 | [IFRIC® Update, November 2013, Agenda Decision, ‘IAS 19 Employee Benefit—Actuarial assumptions: discount rate’ The Interpretations Committee discussed a request for guidance on the determination of the rate used to discount post-employment benefit obligations. The submitter stated that:
In the light of the points above, the submitter asked the Interpretations Committee whether corporate bonds with a rating lower than ‘AA’ can be considered to be HQCB. The Interpretations Committee observed that IAS 19 does not specify how to determine the market yields on HQCB, and in particular what grade of bonds should be designated as high quality. The Interpretations Committee considers that an entity should take into account the guidance in paragraphs 84 and 85 of IAS 19 (2011) in determining what corporate bonds can be considered to be HQCB. Paragraphs 84 and 85 of IAS 19 (2011) state that the discount rate:
The Interpretations Committee further noted that ‘high quality’ as used in paragraph 83 of IAS 19 reflects an absolute concept of credit quality and not a concept of credit quality that is relative to a given population of corporate bonds, which would be the case, for example, if the paragraph used the term ‘the highest quality’. Consequently, the Interpretations Committee observed that the concept of high quality should not change over time. Accordingly, a reduction in the number of HQCB should not result in a change to the concept of high quality. The Interpretations Committee does not expect that an entity’s methods and techniques used for determining the discount rate so as to reflect the yields on HQCB will change significantly from period to period. Paragraphs 83 and 86 of IAS 19, respectively, contain requirements if the market in HQCB is no longer deep or if the market remains deep overall, but there is an insufficient number of HQCB beyond a certain maturity. The Interpretations Committee also noted that:
The Interpretations Committee discussed this issue in several meetings and noted that issuing additional guidance on, or changing the requirements for, the determination of the discount rate would be too broad for it to address in an efficient manner. Consequently, the Interpretations Committee decided not to add this issue to its agenda.] |
27H | In the process of applying the entity’s accounting policies, management makes various judgements, apart from those involving estimations, that can significantly affect the amounts it recognises in the financial statements. For example, management makes judgements in determining:
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27I | Some of the disclosures made in accordance with paragraph 27G are required by other IFRSs. For example, IFRS 12 Disclosure of Interests in Other Entities requires an entity to disclose the judgements it has made in determining whether it controls another entity. IAS 40 Investment Property requires disclosure of the criteria developed by the entity to distinguish investment property from owner-occupied property and from property held for sale in the ordinary course of business, when classification of the property is difficult. |
28 | When initial application of an IFRS has an effect on the current period or any prior period, would have such an effect except that it is impracticable [Refer:paragraphs 5 (definition of impracticable) and 50–53)] to determine the amount of the adjustment, or might have an effect on future periods, an entity shall disclose:
Financial statements of subsequent periods need not repeat these disclosures.
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29 | When a voluntary change in accounting policy has an effect on the current period or any prior period, would have an effect on that period except that it is impracticable [Refer:paragraphs 5 (definition of impracticable) and 50–53)] to determine the amount of the adjustment, or might have an effect on future periods, an entity shall disclose:
Financial statements of subsequent periods need not repeat these disclosures.
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| E12 | [The term ‘faithful representation’, which was used in the Conceptual Framework issued in 2010 and is also used in the revised version of the Conceptual Framework issued in 2018, encompasses the main characteristics that the Framework called ‘reliability’ (refer Conceptual Framework paragraphs 2.12–2.19 and Basis for Conclusions paragraphs BC2.21–BC2.31).] |
30 | When an entity has not applied a new IFRS that has been issued but is not yet effective, the entity shall disclose:
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31 | In complying with paragraph 30, an entity considers disclosing:
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31A | An entity shall disclose information about the assumptions it makes about the future, and other major sources of estimation uncertainty at the end of the reporting period, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year. In respect of those assets and liabilities, the notes shall include details of:
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31B | Determining the carrying amounts of some assets and liabilities requires estimation of the effects of uncertain future events on those assets and liabilities at the end of the reporting period. For example, in the absence of recently observed market prices, future-oriented estimates are necessary to measure the recoverable amount of classes of property, plant and equipment, the effect of technological obsolescence on inventories, provisions subject to the future outcome of litigation in progress, and long-term employee benefit liabilities such as pension obligations. These estimates involve assumptions about such items as the risk adjustment to cash flows or discount rates, future changes in salaries and future changes in prices affecting other costs. |
31C | The assumptions and other sources of estimation uncertainty disclosed in accordance with paragraph 31A relate to the estimates that require management’s most difficult, subjective or complex judgements. As the number of variables and assumptions affecting the possible future resolution of the uncertainties increases, those judgements become more subjective and complex, and the potential for a consequential material adjustment to the carrying amounts of assets and liabilities normally increases accordingly. |
31D | The disclosures in paragraph 31A are not required for assets and liabilities with a significant risk that their carrying amounts might change materially within the next financial year if, at the end of the reporting period, they are measured at fair value based on a quoted price in an active market for an identical asset or liability. Such fair values might change materially within the next financial year but these changes would not arise from assumptions or other sources of estimation uncertainty at the end of the reporting period. |
31E | An entity provides the disclosures in paragraph 31A in a manner that helps users of financial statements to understand the judgements that management makes about the future and about other sources of estimation uncertainty. The nature and extent of the information provided vary according to the nature of the assumption and other circumstances. Examples of the types of disclosures an entity makes are: [Refer:Conceptual Framework paragraphs 1.2–1.10 and 2.36]
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31F | This Standard does not require an entity to disclose budget information or forecasts in making the disclosures in paragraph 31A. |
31G | Sometimes it is impracticable to disclose the extent of the possible effects of an assumption or another source of estimation uncertainty at the end of the reporting period. In such cases, the entity discloses that it is reasonably possible, on the basis of existing knowledge, that outcomes within the next financial year that are different from the assumption could require a material adjustment to the carrying amount of the asset or liability affected. In all cases, the entity discloses the nature and carrying amount of the specific asset or liability (or class of assets or liabilities) affected by the assumption. |
31H | The disclosures in paragraph 27G of particular judgements that management made in the process of applying the entity’s accounting policies do not relate to the disclosures of sources of estimation uncertainty in paragraph 31A. |
31I | Other IFRSs require the disclosure of some of the assumptions that would otherwise be required in accordance with paragraph 31A. For example, IAS 37 Provisions, Contingent Liabilities and Contingent Assets requires disclosure, in specified circumstances, of major assumptions concerning future events affecting classes of provisions. IFRS 13 Fair Value Measurement requires disclosure of significant assumptions (including the valuation technique(s) and inputs) the entity uses when measuring the fair values of assets and liabilities that are carried at fair value. |
32 | An accounting policy may require items in financial statements to be measured in a way that involves measurement uncertainty—that is, the accounting policy may require such items to be measured at monetary amounts that cannot be observed directly and must instead be estimated. In such a case, an entity develops an accounting estimate to achieve the objective set out by the accounting policy. Developing accounting estimates involves the use of judgements or assumptions based on the latest available, reliable information. Examples of accounting estimates include:
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32A | An entity uses measurement techniques and inputs to develop an accounting estimate. Measurement techniques include estimation techniques (for example, techniques used to measure a loss allowance for expected credit losses applying IFRS 9) and valuation techniques (for example, techniques used to measure the fair value of an asset or liability applying IFRS 13). |
32B | The term ‘estimate’ in IFRSs sometimes refers to an estimate that is not an accounting estimate as defined in this Standard. For example, it sometimes refers to an input used in developing accounting estimates. |
33 | The use of reasonable estimates is an essential part of the preparation of financial statements and does not undermine their reliability.E13 |
| E13 | [The term ‘faithful representation’, which was used in the Conceptual Framework issued in 2010 and is also used in the revised version of the Conceptual Framework issued in 2018, encompasses the main characteristics that the Framework called ‘reliability’ (refer Conceptual Framework paragraphs 2.12–2.19 and Basis for Conclusions paragraphs BC2.21–BC2.31).] |
34 | An entity may need to change an accounting estimate if changes occur in the circumstances on which the accounting estimate was based or as a result of new information, new developments or more experience. By its nature, a change in an accounting estimate does not relate to prior periods and is not the correction of an error. |
34A | The effects on an accounting estimate of a change in an input or a change in a measurement technique are changes in accounting estimates unless they result from the correction of prior period errors. |
35 | A change in the measurement basis applied is a change in an accounting policy, and is not a change in an accounting estimate. When it is difficult to distinguish a change in an accounting policy from a change in an accounting estimate, the change is treated as a change in an accounting estimate. |
36 | The effect of a change in an accounting estimate, other than a change to which paragraph 37 applies, shall be recognised prospectively by including it in profit or loss in:
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37 | To the extent that a change in an accounting estimate gives rise to changes in assets and liabilities, or relates to an item of equity, it shall be recognised by adjusting the carrying amount of the related asset, liability or equity item in the period of the change. |
38 | Prospective recognition of the effect of a change in an accounting estimate means that the change is applied to transactions, other events and conditions from the date of that change. A change in an accounting estimate may affect only the current period’s profit or loss, or the profit or loss of both the current period and future periods. For example, a change in a loss allowance for expected credit losses affects only the current period’s profit or loss and therefore is recognised in the current period. However, a change in the estimated useful life of, or the expected pattern of consumption of the future economic benefits embodied in, a depreciable asset affects depreciation expense for the current period and for each future period during the asset’s remaining useful life. In both cases, the effect of the change relating to the current period is recognised as income or expense in the current period. The effect, if any, on future periods is recognised as income or expense in those future periods. |
39 | An entity shall disclose the nature and amount of a change in an accounting estimate that has an effect in the current period or is expected to have an effect in future periods, except for the disclosure of the effect on future periods when it is impracticable to estimate that effect.
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40 | If the amount of the effect in future periods is not disclosed because estimating it is impracticable, an entity shall disclose that fact.
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41 | Errors can arise in respect of the recognition, measurement, presentation or disclosure of elements of financial statements. Financial statements do not comply with IFRSs if they contain either material errors or immaterial errors made intentionally to achieve a particular presentation of an entity’s financial position, financial performance or cash flows. Potential current period errors discovered in that period are corrected before the financial statements are authorised for issue. However, material errors are sometimes not discovered until a subsequent period, and these prior period errors are corrected in the comparative information [Refer:IFRS 18 paragraphs 31–40 and B13–B15] presented in the financial statements for that subsequent period (see paragraphs 42–47). |
42 | Subject to paragraph 43, an entity shall correct material prior period errors retrospectively in the first set of financial statements authorised for issue after their discovery by:
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43 | A prior period error shall be corrected by retrospective restatement except to the extent that it is impracticable to determine either the period‑specific effects or the cumulative effect of the error. |
44 | When it is impracticable to determine the period‑specific effects of an error on comparative information [Refer:IFRS 18 paragraphs 31–40 and B13–B15] for one or more prior periods presented, the entity shall restate the opening balances of assets, liabilities and equity for the earliest period for which retrospective restatement is practicable (which may be the current period). |
45 | When it is impracticable [Refer:paragraphs 5 (definition of impracticable) and 50–53] to determine the cumulative effect, at the beginning of the current period, of an error on all prior periods, the entity shall restate the comparative information [Refer:IFRS 18 paragraphs 31–40 and B13–B15] to correct the error prospectively from the earliest date practicable. |
46 | The correction of a prior period error is excluded from profit or loss for the period in which the error is discovered. Any information presented about prior periods, including any historical summaries of financial data, is restated as far back as is practicable. |
47 | When it is impracticable [Refer:paragraphs 5 (definition of impracticable) and 50–53] to determine the amount of an error (eg a mistake in applying an accounting policy) for all prior periods, the entity, in accordance with paragraph 45, restates the comparative information [Refer:IFRS 18 paragraphs 31–40 and B13–B15] prospectively from the earliest date practicable. It therefore disregards the portion of the cumulative restatement of assets, liabilities and equity arising before that date. Paragraphs 50–53 provide guidance on when it is impracticable to correct an error for one or more prior periods. |
48 | Corrections of errors are distinguished from changes in accounting estimates. Accounting estimates by their nature are approximations that may need changing as additional information becomes known. For example, the gain or loss recognised on the outcome of a contingency is not the correction of an error. |
49 | In applying paragraph 42, an entity shall disclose the following:
Financial statements of subsequent periods need not repeat these disclosures. |
50 | In some circumstances, it is impracticable to adjust comparative information [Refer:IFRS 18 paragraphs 31–40, B13–B15 and IFRS 1 paragraph 7] for one or more prior periods to achieve comparability [Refer:Conceptual Framework paragraphs 2.24-2.29] with the current period. For example, data may not have been collected in the prior period(s) in a way that allows either retrospective application of a new accounting policy (including, for the purpose of paragraphs 51–53, its prospective application to prior periods) or retrospective restatement to correct a prior period error, and it may be impracticable to recreate the information.E14 |
| E14 | [IFRIC® Update, October 2004, Agenda Decision, ‘Transition issues under IFRS 1’ The IFRIC considered two issues regarding first-time adoption of IFRSs. The first issue was whether the ‘impracticability’ exception under IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors [now IAS 8 Basis of Preparation of Financial Statements] should also apply to first time adopters. The IFRIC agreed that there were potential issues, especially with respect to ‘old’ items, such as property, plant and equipment. However, those issues could usually be resolved by using one of the transition options available in IFRS 1. The second issue was ...] |
51 | It is frequently necessary to make estimates in applying an accounting policy to elements of financial statements recognised or disclosed in respect of transactions, other events or conditions. Estimation is inherently subjective, and estimates may be developed after the reporting period. Developing estimates is potentially more difficult when retrospectively applying an accounting policy or making a retrospective restatement to correct a prior period error, because of the longer period of time that might have passed since the affected transaction, other event or condition occurred. However, the objective of estimates related to prior periods remains the same as for estimates made in the current period, namely, for the estimate to reflect the circumstances that existed when the transaction, other event or condition occurred. |
52 | Therefore, retrospectively applying a new accounting policy or correcting a prior period error requires distinguishing information that
from other information. For some types of estimates (eg a fair value measurement that uses significant unobservable inputs), it is impracticable to distinguish these types of information. When retrospective application or retrospective restatement would require making a significant estimate for which it is impossible to distinguish these two types of information, it is impracticable to apply the new accounting policy or correct the prior period error retrospectively. |
53 | Hindsight should not be used when applying a new accounting policy to, or correcting amounts for, a prior period, either in making assumptions about what management’s intentions would have been in a prior period or estimating the amounts recognised, measured or disclosed in a prior period. For example, when an entity corrects a prior period error in calculating its liability for employees’ accumulated sick leave in accordance with IAS 19 Employee Benefits, it disregards information about an unusually severe influenza season during the next period that became available after the financial statements for the prior period were authorised for issue. [Refer:IAS 10 paragraphs 3−7] The fact that significant estimates are frequently required when amending comparative information [Refer:IFRS 18 paragraphs 31–40 and B13–B15] presented for prior periods does not prevent reliable adjustment or correction of the comparative information. |
54 | An entity shall apply this Standard for annual periods beginning on or after 1 January 2005. Earlier application is encouraged. If an entity applies this Standard for a period beginning before 1 January 2005, it shall disclose that fact. |
54A | [Deleted] |
54B | [Deleted] |
54C | IFRS 13 Fair Value Measurement, issued in May 2011, amended paragraph 52. An entity shall apply that amendment when it applies IFRS 13. |
54D | [Deleted] |
54E | IFRS 9 Financial Instruments, as issued in July 2014, amended paragraph 53 and deleted paragraphs 54A, 54B and 54D. An entity shall apply those amendments when it applies IFRS 9. |
54F | Amendments to References to the Conceptual Framework in IFRS Standards, issued in 2018, amended paragraphs 6 and 11(b). An entity shall apply those amendments for annual periods beginning on or after 1 January 2020. Earlier application is permitted if at the same time an entity also applies all other amendments made by Amendments to References to the Conceptual Framework in IFRS Standards. An entity shall apply the amendments to paragraphs 6 and 11(b) retrospectively in accordance with this Standard. However, if an entity determines that retrospective application would be impracticable or would involve undue cost or effort, it shall apply the amendments to paragraphs 6 and 11(b) by reference to paragraphs 23–28 of this Standard. If retrospective application of any amendment in Amendments to References to the Conceptual Framework in IFRS Standards would involve undue cost or effort, an entity shall, in applying paragraphs 23–28 of this Standard, read any reference except in the last sentence of paragraph 27 to ‘is impracticable’ as ‘involves undue cost or effort’ and any reference to ‘practicable’ as ‘possible without undue cost or effort’. |
54G | If an entity does not apply IFRS 14 Regulatory Deferral Accounts, the entity shall, in applying paragraph 11(b) to regulatory account balances, continue to refer to, and consider the applicability of, the definitions, recognition criteria, and measurement concepts in the Framework for the Preparation and Presentation of Financial Statements2 instead of those in the Conceptual Framework. A regulatory account balance is the balance of any expense (or income) account that is not recognised as an asset or a liability in accordance with other applicable IFRS Standards but is included, or is expected to be included, by the rate regulator in establishing the rate(s) that can be charged to customers. A rate regulator is an authorised body that is empowered by statute or regulation to establish the rate or a range of rates that bind an entity. The rate regulator may be a third-party body or a related party of the entity, including the entity’s own governing board, if that body is required by statute or regulation to set rates both in the interest of the customers and to ensure the overall financial viability of the entity. |
54H | Definition of Material (Amendments to IAS 1 and IAS 8), issued in October 2018, amended paragraph 7 of IAS 1 and paragraph 5 of IAS 8, and deleted paragraph 6 of IAS 8. An entity shall apply those amendments prospectively for annual periods beginning on or after 1 January 2020. Earlier application is permitted. If an entity applies those amendments for an earlier period, it shall disclose that fact.3 |
54I | Definition of Accounting Estimates, issued in February 2021, amended paragraphs 5, 32, 34, 38 and 48 and added paragraphs 32A, 32B and 34A. An entity shall apply these amendments for annual reporting periods beginning on or after 1 January 2023. Earlier application is permitted. An entity shall apply the amendments to changes in accounting estimates and changes in accounting policies that occur on or after the beginning of the first annual reporting period in which it applies the amendments. |
54J | IFRS 18 issued in April 2024 amended paragraphs 1, 3, 5, 11 and 32, added paragraphs 3A, 6A–6N, 27A–27I and 31A–31I and related headings and subheadings, added a subheading above paragraph 28 and deleted paragraph 2. An entity shall apply those amendments when it applies IFRS 18. |
55 | This Standard supersedes IAS 8 Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies, revised in 1993. |
56 | This Standard supersedes the following Interpretations:
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The amendments in this appendix shall be applied for annual periods beginning on or after 1 January 2005. If an entity applies this Standard for an earlier period, these amendments shall be applied for that earlier period.
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The amendments contained in this appendix when this Standard was revised in 2003 have been incorporated into the relevant pronouncements published in this volume.
International Accounting Standard 8 Accounting Policies, Changes in Accounting Estimates and Errors (as revised in 2003) was approved for issue by the fourteen members of the International Accounting Standards Board.
| Sir David Tweedie | Chairman |
| Thomas E Jones | Vice‑Chairman |
| Mary E Barth | |
| Hans‑Georg Bruns | |
| Anthony T Cope | |
| Robert P Garnett | |
| Gilbert Gélard | |
| James J Leisenring | |
| Warren J McGregor | |
| Patricia L O’Malley | |
| Harry K Schmid | |
| John T Smith | |
| Geoffrey Whittington | |
| Tatsumi Yamada |
Definition of Material (Amendments to IAS 1 and IAS 8) was approved for issue by the fourteen members of the International Accounting Standards Board.
| Hans Hoogervorst | Chairman |
| Suzanne Lloyd | Vice‑Chair |
| Nick Anderson | |
| Martin Edelmann | |
| Françoise Flores | |
| Amaro Luiz de Oliveira Gomes | |
| Gary Kabureck | |
| Jianqiao Lu | |
| Takatsugu Ochi | |
| Darrel Scott | |
| Thomas Scott | |
| Chungwoo Suh | |
| Ann Tarca | |
| Mary Tokar |
Definition of Accounting Estimates, which amended IAS 8, was approved for issue by 12 of 13 members of the International Accounting Standards Board. Mr Mackenzie abstained from voting in view of his recent appointment to the Board.
| Hans Hoogervorst | Chairman |
| Suzanne Lloyd | Vice-Chair |
| Nick Anderson | |
| Tadeu Cendon | |
| Martin Edelmann | |
| Françoise Flores | |
| Zach Gast | |
| Jianqiao Lu | |
| Bruce Mackenzie | |
| Thomas Scott | |
| Rika Suzuki | |
| Ann Tarca | |
| Mary Tokar |
| 1 | Paragraph 54G explains how this requirement is amended for regulatory account balances. (back) |
| 2 | The reference is to the IASC’s Framework for the Preparation and Presentation of Financial Statements adopted by the Board in 2001. [Editor’s note: An extract from the IASC’s Framework for the Preparation and Presentation of Financial Statements, adopted by the Board in 2001, is available on the IAS 8 page of the ‘Supporting Implementation’ area of the Foundation’s website, under ‘Supporting Implementation by IFRS Standard’.] (back) |
| 3 | In April 2024 the IASB issued IFRS 18 Presentation and Disclosure in Financial Statements and carried over the definition of ‘material’ in IAS 1 Presentation of Financial Statements to IFRS 18. (back) |