Applying Changes in Accounting Policies

Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements.

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, paragraph 14 states that :

An entity shall change an accounting policy only if the change :

1. is required by an IFRS; or
2. results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity's financial position, financial performance or cash flows.

Par. 19 stated that subject to paragraph 23 :

1. an entity shall account for a change in accounting policy resulting from the initial application of an IFRS in accordance with the specific transitional provisions, if any, in that IFRS; and
2. when an entity changes an accounting policy upon initial application of an IFRS that does not include specific transitional provisions applying to that change, or changes in accounting policy voluntarily, it shall apply the change retrospectively.

For the purpose of this Standard, early application of an IFRS is not a voluntary change in accounting policy (par. 20).

In the absence of an IFRS that specifically applies to a transaction, other event or condition, management may, in accordance with par. 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 (par. 21).

Retrospective Application

Subject to par. 23, when a change in accounting policy is applied retrospectively in accordance with par. 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 disclosed for each prior period presented as if the new accounting policy had always been applied (par. 22).

Limitations on Retrospective Application

When retrospective application is required by par. 19(a) or (b), a change in accounting policy shall be applied retrospectively except to the extent that it is impracticable to determine either the period-specific effects or the cumulative effect of the change (par. 23).

When it is impracticable to determine the period-specific effects of changing an accounting policy on comparative information 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 (par. 24).

When it is impracticable 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 to apply the new accounting policy prospectively from the earliest date practicable (par. 25).

(Source : IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors)