IASB to clarify how to distinguish accounting policies from estimates

The International Accounting Standards Board (IASB) is consulting on proposed narrow scope amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to make it easier for company preparers to make the distinction between accounting policies and accounting estimates

The proposed changes are designed to help companies distinguish accounting policies from accounting estimates. 

The distinction is important because changes in accounting estimates often affect a company’s profit or loss, but changes in accounting policies generally do not.

The proposed amendments would clarify:

(a) how accounting policies and accounting estimates relate to each other, by:

  • (i) explaining that accounting estimates are used in applying accounting policies; and
  • (ii) making the definition of accounting policies clearer and more concise;

(b) that selecting an estimation technique, or valuation technique, used when an item in the financial statements cannot be measured with precision, constitutes making an accounting estimate; and

(c) that, in applying IAS 2 Inventories, selecting the first-in, first-out (FIFO) cost formula or the weighted average cost formula for interchangeable inventories constitutes selecting an accounting policy.

The consultation closes on 15 January 2018.

The 20-page Exposure Draft Accounting Policies and Accounting Estimates (Proposed amendments to IAS 8) ED/2017/5

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