This document combines a technical, fact-checked summary of IAS 8 with a plain‑English explanation commonly used by auditors to distinguish between restatements, changes in estimates, and prior‑period errors.
Standard & Objective
Standard: IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
Objective (IAS 8.1–2):
To prescribe the criteria for selecting and changing accounting policies, together with the accounting treatment and disclosure of:
• changes in accounting policies
• changes in accounting estimates
• corrections of prior‑period errors
When Restatement APPLIES
1. Change in Accounting Policy
Relevant references: IAS 8.14–19, IAS 8.22–27
A change in accounting policy occurs when an entity changes the specific principles, bases, conventions, rules or practices applied in preparing financial statements (IAS 8.5).
Restatement is required if the change is voluntary and is not required by a new or amended IFRS that provides its own transition provisions.
Accounting treatment:
• Apply retrospectively (IAS 8.19(a))
• Restate comparative information for prior periods presented
• Adjust opening retained earnings (or other equity) of the earliest period presented (IAS 8.22)
Key technical point:
Retrospective application means applying the new policy as if it had always been applied (IAS 8.5).
2. Prior‑Period Error
Relevant references: IAS 8.41–49
A prior‑period error arises from mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, or fraud, provided the information was available and could reasonably have been expected to be taken into account when the financial statements were authorised for issue (IAS 8.5).
Restatement is required if the error is material.
Accounting treatment:
• Correct retrospectively (IAS 8.42)
• Restate comparatives
• Adjust opening retained earnings of the earliest period presented
Materiality interaction:
IAS 8 interacts with IAS 1 and IAS 10. Immaterial errors may be corrected prospectively without restatement.
When Restatement DOES NOT APPLY
3. Change in Accounting Estimate
Relevant references: IAS 8.32–40
A change in accounting estimate results from new information, new developments, or better experience. It does not relate to prior periods and is not an error (IAS 8.34).
Accounting treatment:
• Apply prospectively only (IAS 8.36)
• Recognise in profit or loss of the current period and/or future periods affected
• No restatement of comparatives
• No adjustment to opening equity
IAS 8.35 (critical audit principle):
“The use of reasonable estimates is an essential part of the preparation of financial statements and does not undermine their reliability.”
High‑Risk Practical Area: IFRS / FRS 15 (Input vs Output Method)
Relevant references:
• IFRS 15.39–45 (measuring progress)
• IAS 8.32–34 (estimates vs errors)
Change in estimate (NO restatement) if:
• the original method was appropriate and reasonable based on information available at the time, and
• management updates the method due to better data, improved systems, or refined judgement.
Apply prospectively.
Prior‑period error (RESTATEMENT required) if:
• the prior method did not faithfully depict performance, or
• was non‑compliant with IFRS 15 even at the time it was applied.
Correct retrospectively under IAS 8.42.
Auditor test question:
“Based on facts available at that reporting date, could a reasonable preparer have concluded the old method was appropriate?”
If yes → change in estimate
If no → prior‑period error
New Standards Interaction
Relevant reference: IAS 8.19(b)
If a change arises from a new or amended IFRS that includes specific transition provisions, the entity must follow those transition provisions rather than IAS 8’s default retrospective rules.
Audit Rule of Thumb (Widely Used)
If the previous treatment was acceptable and supportable at the time, it is not a restatement.
This principle is consistent with:
• IAS 8.34–35 (changes in accounting estimates)
• IAS 8.5 (definition of a prior‑period error)
Plain‑English meaning:
Financial statements are assessed using information available at the time they were prepared. Restatements correct past errors — they do not rewrite history simply because better information becomes available later.