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Standards are normally published in advance of the required implementation date. In the intervening period, where a new/revised Standard that is relevant to an
entity has been issued but is not yet effective, the entity discloses this fact. It also provides the known or reasonably estimable information relevant to assessing the
impact that the application of the Standard might have on the entity’s financial statements in the period of initial recognition.
When an entity applies an accounting Standard or Interpretation for the first time it applies the specific transitional provisions, if any, of that Standard or
Interpretation. For example, a new standard may specify that it should only be applied prospectively and, if so, the entity does not make prior period adjustments for
the effect of the change.
PRACTICAL INSIGHT
According to IAS 8, when an entity’s management is faced with a situation of interpretation of the IASB Standards on a matter that is not expressly
covered by the existing IASB Standards or Interpretations, then it should look at the IASB’s Framework for answers. While doing so it should also
research recent pronouncements of other standard setters to the extent that these do not conflict with the IASB Standards or Interpretations or its
Framework.
For example, compare Standards issued to date by the IASB to US generally accepted accounting principles (GAAP), which address not only general
accounting standards but are replete with industry-specific rules and guidance. US GAAP contains accounting pronouncements and guidelines for
industries ranging from oil and gas to real estate; the IASB Standards are geared toward general accounting standards and not so much industry-specific
guidance, although some of the recently promulgated IASB Standards seek to address industry-specific standards as well. To date, the only industries that
are covered by the IASB Standards are the insurance and the extractive industries. Thus, according to IAS 8, if an entity’s management is seeking answers
to accounting matters or issues relating to a specific industry that the IASB Standards have not yet addressed, then guidance under US GAAP (or other
national standards that provide such guidance) may be consulted, keeping in mind that the guidance to be applied must not conflict with the primary source
of reference (i.e., the IASB Standards and Interpretations or the IASB’s Framework).
CONSISTENCY OF ACCOUNTING POLICIES
Once selected, accounting policies must be applied consistently for similar transactions, other events, and conditions unless a Standard or Interpretation specifically
otherwise requires or permits categorization of items for which different policies may be appropriate.
If a Standard or Interpretation requires or permits such categorization, an appropriate accounting policy shall be selected and applied consistently to each category.
FACTORS GOVERNING CHANGES IN ACCOUNTING POLICIES
Once selected, an accounting policy may be changed only if the change
• Is required by a Standard or an Interpretation.
• Results in financial statements providing reliable and more relevant information.
PRACTICAL INSIGHT
In the year in which an entity changes its accounting system from manual to computerized, it may be required to switch from the first-in, first-out (FIFO)
method (which it used while valuing inventory manually) to the weighted-average method. This change may be essential because the computerized system,
which is tailor-made for the industry to which the entity belongs, is capable of valuing inventories under the weighted-average method only and is not
equipped to value inventories under the FIFO method, because industry best practice dictates that only weighted-average is appropriate for the industry to
which the entity belongs. Under these circumstances, this change in method of valuing inventories from the FIFO to the weighted-average method is
probably justified because it results in financial statements providing reliable and more relevant information (and is comparable to other entities within the
industry to which the entity belongs).
These items are not considered changes in accounting policies:
• The application of an accounting policy for transactions, other events, or conditions that differ in substance from those previously occurring
• The application of a new accounting policy for transactions, other events, or conditions, that did not occur previously or were immaterial
APPLYING CHANGES IN ACCOUNTING POLICIES
A change in accounting policy required by a Standard or Interpretation shall be applied in accordance with the transitional provisions therein. If a Standard or
Interpretation contains no transitional provisions or if an accounting policy is changed voluntarily, the change shall be applied retrospectively. That is to say, the new
policy is applied to transactions, other events, and conditions as if the policy had always been applied.
The practical impact of this is that corresponding amounts (or “comparatives”) presented in financial statements must be restated as if the new policy had always