Outliers Professionals LtdOutliersProfessionals · Ltd
Knowledge Centre · IFRS

IAS 8

Accounting Policies, Changes in Accounting Estimates and Errors

IAS 8 sets the hierarchy for selecting accounting policies, distinguishes a change in accounting policy from a change in accounting estimate, and prescribes retrospective correction of prior period errors, so that financial statements remain comparable and reliable over time. [S1]

Effective 2005-01-01Related: IAS 1 · IAS 7 · IAS 10 · IAS 12

Overview

IAS 8 covers three distinct situations that are often confused in practice: (1) selecting and applying accounting policies when a Standard does not specifically address a transaction; (2) accounting for a change in accounting policy, which is applied retrospectively unless impracticable or a Standard's transition provisions say otherwise; and (3) accounting for a change in accounting estimate, which is applied prospectively. It also requires prior period errors to be corrected retrospectively, as if the error had never occurred, subject to a practicability limit. [S1][S2]

Why it matters

Getting the policy/estimate/error distinction wrong changes both the mechanics (retrospective restatement versus prospective adjustment) and the optics (an 'error' correction draws far more scrutiny from auditors, regulators and lenders than a routine estimate revision). This distinction directly affects whether comparatives are restated, whether a third statement of financial position is required, and how the change is explained to the board.

Scope

Applies whenever an entity selects and applies accounting policies, changes an existing policy, revises an accounting estimate, or corrects an error in previously issued financial statements. It does not override the transitional provisions of any other Standard, which take precedence over IAS 8's general retrospective approach when an entity first applies a new or amended Standard.

Key definitions

term
Accounting policies
definition
The specific principles, bases, conventions, rules and practices applied in preparing and presenting financial statements.
term
Change in accounting estimate
definition
An adjustment to the carrying amount of an asset or liability, or the periodic consumption of an asset, resulting from new information or developments; not a correction of an error.
term
Prior period errors
definition
Omissions from, and misstatements in, an entity's financial statements for prior periods arising from a failure to use, or misuse of, reliable information available when those statements were authorised for issue.
term
Retrospective application
definition
Applying a new accounting policy as if it had always been applied.
term
Retrospective restatement
definition
Correcting recognition, measurement and disclosure of amounts as if a prior period error had never occurred.
term
Impracticable
definition
A requirement cannot be applied after every reasonable effort has been made to do so.

Recognition

Where no Standard specifically applies to a transaction, management uses judgement to develop a policy that results in relevant and reliable information, referring first to requirements in Standards dealing with similar issues, then to the Conceptual Framework, and may also consider other standard-setters' pronouncements and accepted industry practice to the extent they do not conflict with IFRS. A change in accounting policy is recognised only if required by a Standard or if it results in more relevant and reliable information.

Initial measurement

Not a separate measurement stage in the way recognition and measurement standards for assets or liabilities work; instead, IAS 8 dictates the mechanics of transition: a voluntary or mandatory policy change is applied retrospectively by adjusting the opening balance of each affected component of equity (usually retained earnings) for the earliest prior period presented, and restating comparative amounts, unless retrospective application is impracticable.

Subsequent measurement

Changes in accounting estimates (e.g. a revised useful life, a revised expected credit loss rate, a revised warranty provision percentage) are recognised prospectively in profit or loss in the period of the change and, if the change affects future periods, in those future periods too. No restatement of prior periods is made for a genuine estimate change.

Presentation

Retrospective restatements affect the statement of changes in equity (opening retained earnings adjustment) and require restated comparative figures; where the restatement is material, a third statement of financial position (at the beginning of the earliest comparative period) is required under IAS 1. Changes in estimates are presented within the normal line item of profit or loss to which the estimate relates, with no separate 'restatement' column.

Disclosure checklist

  • Nature of a new IFRS pronouncement not yet effective, and its expected impact, if known or reasonably estimable.
  • For a voluntary change in accounting policy: the reason the new policy provides more reliable and relevant information, and the amount of the adjustment for the current and each prior period presented.
  • For a change in accounting estimate: the nature and amount of the change, and its effect on the current period and expected effect on future periods (or a statement that the effect on future periods is not disclosed because it is impracticable to estimate).
  • For a prior period error: the nature of the error, the amount of the correction for each prior period presented, and the amount of the correction at the beginning of the earliest period presented.
  • Where retrospective application or restatement is impracticable for a particular prior period, disclosure of that fact and of how and from when the change has been applied.

Practical treatment

The single most common trigger for an IAS 8 question in client work is a first-time move from informal or cash-basis bookkeeping to full IFRS accrual recognition, uncovered during an accounts reconstruction — this is generally a prior period error correction, not a policy change, because the original books were not IFRS-compliant in the first place. A genuine policy change (for example moving from cost model to revaluation model for a class of PPE) is rarer and requires a clear justification of improved reliability/relevance, board minute evidence, and auditor sign-off before it is presented as a change in policy rather than a correction. See nigeria_notes for the tax filing consequences that can follow a restatement.

Common mistakes

  • Treating a correction of a bookkeeping omission (e.g. depreciation never charged) as a 'change in accounting policy' to avoid the word 'error' — this is a prior period error and must be labelled and disclosed as such.
  • Restating only the profit or loss line without also restating the opening retained earnings and, where material, adding the third statement of financial position required by IAS 1.
  • Applying a change in useful life or residual value retrospectively (it is a change in estimate and must be prospective).
  • Failing to quantify the effect of the correction for each prior period presented, leaving a vague narrative disclosure instead of the required numeric reconciliation.
  • Not distinguishing a change required by a new/amended IFRS (transition rules in that Standard apply) from a voluntary policy change (IAS 8's general retrospective rule applies).

CFO checklist

  • Confirm every restatement is classified correctly as (a) initial application of a new IFRS, (b) voluntary policy change, (c) change in estimate, or (d) error correction, since each has different mechanics.
  • For any restatement, prepare a clear quantified reconciliation of the affected line items and opening equity for the board and auditors.
  • Assess whether the restatement is material enough to require a third statement of financial position under IAS 1.
  • Flag any restatement that changes an already-filed tax position to the tax compliance team for a separate assessment of amendment obligations.
  • Document the judgement and evidence (board minutes, technical memo) supporting any voluntary accounting policy change before year-end audit fieldwork begins.

FAQs

q
We changed our expected credit loss percentage on trade receivables this year based on updated default history — is this a policy change or an estimate change?
a
This is a change in accounting estimate (a revised input into an existing IFRS 9 impairment policy), applied prospectively in the current period; the underlying accounting policy of applying the expected credit loss model has not changed.
q
We discovered depreciation was never charged on a warehouse for two prior years — how do we fix it?
a
This is a prior period error. It is corrected retrospectively: restate the comparative period(s) presented, adjust opening retained earnings for the earliest period presented for the cumulative effect not already captured in the comparative shown, and disclose the nature and amount of the correction for each period.
q
Does every voluntary accounting policy change need retrospective restatement?
a
Yes, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change, in which case the more limited impracticability exception in IAS 8 applies and must be disclosed.

Nigeria application notes

Regulatory overlay

IAS 8 applies in full to Nigerian public interest entities under the FRCN Act 2011 mandate; there is no Nigeria-specific carve-out for the policy/estimate/error distinction itself. [S3]

Tax interaction (Nigeria)

A restatement that changes assessable profits already reported to the NRS for a closed year does not automatically amend the tax filing; the accounting correction under IAS 8 and the taxpayer's separate obligation (if any) to notify or amend a filed return are distinct questions, and the tax consequence should be assessed by the tax compliance team, taking account of the current CIT and development levy rules under the Nigeria Tax Act 2025 [S_TAX1][S5][S6], and any consequential VAT position for the periods restated, since VAT remittances are unaffected by an income-statement restatement but should still be reviewed for consistency. [S_TAX2]

FX considerations

Where a restatement involves foreign-currency transactions or balances, the correction should be retranslated using the exchange rates that applied in the relevant prior period(s) rather than a current rate, consistent with IAS 21; this is frequently overlooked when a multi-year reconstruction is done from bank statements alone.

SME practical note

Many Nigerian SME engagements involve reconstructing several years of accounts from bank statements or informal records; where this reveals that prior 'financial statements' were not prepared on an IFRS basis at all, the correction on first proper IFRS preparation is generally treated and disclosed as a prior period error rather than a policy change, and the client should be advised of this classification early, before expectations are set around a simpler prospective fix.

Common Nigerian pitfalls

  • Labelling a correction of previously non-IFRS-compliant bookkeeping as a 'policy change' to soften the disclosure.
  • Not flagging a material restatement to the tax compliance team for a separate assessment of filed-return implications.
  • Reconstructing multi-year accounts from bank statements using a single current FX rate instead of the period-appropriate historical rates.
  • Under-disclosing the quantified effect of a restatement in client financial statements prepared for regulatory or lender submission.

FRC pronouncements

No FRCN pronouncement specific to IAS 8 has been identified; FRCN's role here is the general supervisory mandate to promote IFRS compliance and, under CAMA 2020, to enforce accounting and financial reporting standards. [S3][S4]

Worked examples

Prior period error — depreciation omitted for two years

During an IFRS conversion engagement for a manufacturing client, Outliers discovers that depreciation of ₦4,000,000 per year was never charged on a machine for the 2024 and 2025 financial years. The 2026 financial statements are being prepared with 2025 as the comparative year.

Facts

Workings

Total omitted depreciation (2024 + 2025): 8,000,000

2024 portion (adjust opening retained earnings at the start of the earliest period presented, i.e. 1 Jan 2025): 4,000,000

2025 portion (restate the 2025 comparative period depreciation expense and closing retained earnings): 4,000,000

Journal entries

Correct 2024 prior period error: depreciation omitted (adjustment to opening retained earnings at the start of the earliest period presented).

AccountDr (₦)Cr (₦)
Retained earnings (opening balance, 1 Jan 2025)4,000,000
Accumulated depreciation – machinery4,000,000

Restate 2025 comparative depreciation charge as part of the same prior period error correction.

AccountDr (₦)Cr (₦)
Depreciation expense (2025 comparative, restated)4,000,000
Accumulated depreciation – machinery4,000,000

Change in accounting estimate — revised useful life

At the start of the 2026 financial year, an entity revises the remaining useful life of a delivery vehicle from 2 years to 4 years based on updated maintenance experience. The vehicle's carrying amount at the start of 2026 is ₦10,000,000.

Facts

Workings

Original annual depreciation basis: carrying amount / 2 years remaining = 5,000,000 per year

Revised annual depreciation basis: carrying amount / 4 years remaining = 2,500,000 per year

Applied prospectively from 2026 only; 2024 and 2025 depreciation already recognised is not restated.

Journal entries

2026 depreciation charge on revised useful life estimate.

AccountDr (₦)Cr (₦)
Depreciation expense2,500,000
Accumulated depreciation – motor vehicles2,500,000

Sources & citations

  1. [S1]IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors — IFRS Foundationaccessed 2026-07-18
  2. [S2]IAS 8 — Accounting Policies, Changes in Accounting Estimates and Errors (standard summary) — IAS Plus, Deloitteaccessed 2026-07-18
  3. [S3]IFRS - Use of IFRS Standards by jurisdiction: Nigeria — IFRS Foundationaccessed 2026-07-18
  4. [S4]Highlights of the provisions relating to financial statements, audit and annual returns in CAMA 2020 — Dentons ACAS-Lawaccessed 2026-07-18
  5. [S5]Nigeria - Corporate - Taxes on corporate income — PwC Worldwide Tax Summariesaccessed 2026-07-18
  6. [S_TAX1]Nigeria Tax Act, 2025 has been signed – highlights — EY Globalaccessed 2026-07-18
  7. [S_TAX2]Nigeria - New Legislation Includes Important Changes to VAT Rules — BDO Globalaccessed 2026-07-18
  8. [S6]Nigeria's 2025 Tax Reform Acts Explained: Key Changes — Baker Tilly Nigeriaaccessed 2026-07-18
Last reviewed 2026-07-18 · Reviewer: Rafiu Olawuyi (FCA — Author / Technical Reviewer)