Accounting Policies, Changes in Accounting Estimates, and Errors

Financial statements are impacted by the choices made from among different, acceptable accounting principles and methodologies. Companies select those accounting principles and methods that they believe depict, in their financial statements, the economic reality of their financial position, results of operations, and changes in financial position. This chapter addresses the criteria for selecting and changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates, and corrections of errors in accordance with international accounting standards 8 (IAS 8). IAS 8 has established a hierarchy of accounting guidance for selecting accounting policies in accordance with international financial reporting standards (IFRS). Generally, IAS 8 provides that a change in an accounting policy should be reflected in financial statements by retrospective application to all prior periods presented as if that policy had always been applied, unless it is impracticable to do so.