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Accounting Policies vs. Estimates Explained

Accounting policies refer to the rules, guidelines, conventions, and principles used to prepare financial statements, such as the measurement basis for assets. A change in accounting policy, such as choosing fair value over historical cost, requires retrospective application. An accounting estimate is an amount determined based on a selected accounting policy, like updating a provision for changes in fair value, and changes in estimates are applied prospectively rather than retrospectively.

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145 views8 pages

Accounting Policies vs. Estimates Explained

Accounting policies refer to the rules, guidelines, conventions, and principles used to prepare financial statements, such as the measurement basis for assets. A change in accounting policy, such as choosing fair value over historical cost, requires retrospective application. An accounting estimate is an amount determined based on a selected accounting policy, like updating a provision for changes in fair value, and changes in estimates are applied prospectively rather than retrospectively.

Uploaded by

Alex Ong
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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PAS 8: Accounting Policies,

Changes in Accounting
Estimates and Errors
PART II – Accounting Policies
and Errors
Accounting Policies
• Accounting policies are anything from rules, guidelines, conventions,
principles and similar norms used by entities for the preparation of
the financial statements

• IAS 8 specifically points out that the basis, especially measurement


basis is an accounting policy rather than accounting estimate.
Difference between accounting policy and
accounting estimate
• While accounting policy is a principle or rule, or a measurement
basis, accounting estimate is the amount determined based on
selected basis or some pattern of future consumption of the [Link]
example: choice fair value vs. historical cost is a choice in accounting
policy (remember, measurement basis), but updating some provision
based on fair value change is a change in accounting estimate.
• While change accounting policy is accounted for retrospectively , you
need to account for change in accounting estimate prospectively.
REFERENCES
• IFRS Box. Retrieved from [Link]

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