9. Annex NSA IAS 8
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Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
Paragraphs 5, 32, 34, 38 and 48 and the heading above paragraph 32 are amended. Paragraphs 32A–32B, 34A and 54I and the headings above paragraphs 34 and 36 are added. The heading above paragraph 39 is amended to be a sub-heading of the heading added above paragraph 34. Deleted text is struck through and new text is underlined.
Definitions
5The following terms are used in this Standard with the meanings specified:
Accounting estimates are monetary amounts in financial statements that are subject to measurement uncertainty.
A change in accounting estimate is an adjustment of the carrying amount of an asset or a liability, or the amount of the periodic consumption of an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities. Changes in accounting estimates result from new information or new developments and, accordingly, are not corrections of errors.
Accounting Changes in accounting estimates
32An 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. As a result of the uncertainties inherent in business activities, many items in financial statements cannot be measured with precision but can only be estimated. Developing accounting estimates involves the use of judgements or assumptions Estimation involves judgements-based on the latest available, reliable information. Examples of accounting estimates include For example, estimates may be required of:
- a loss allowance for expected credit losses, applying IFRS 9 Financial Instruments
bad debts; - the net realisable value of an item of inventory, applying IAS 2 Inventories
inventory obsolescence; - the fair value of an asset or liability, applying IFRS 13 Fair Value Measurement
financial assets or financial liabilities; - the depreciation expense for an item of property, plant and equipment, applying IAS 16
the useful lives of, or expected pattern of consumption of the future economic benefits embodied in, depreciable assets; and - a provision for
warranty obligations, applying IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
32AAn 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). 32BThe 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.
Changes in accounting estimates
34An entity may need to change an accounting estimate may need revision 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 the revision of an estimate does not relate to prior periods and is not the correction of an error.
34AThe 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.
Applying changes in accounting estimates
38Prospective 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 the change in the estimate. 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 the estimate of the amount of bad debts 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.
Disclosure
Disclosure
Errors
48Corrections of errors are distinguished from changes in accounting estimates. Accounting estimates by their nature are approximations that may need changing revision revision 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.
Effective date and transition
54IDefinition 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.