IAS 8 | Basis of Preparation of Financial Statements

1

Objective

The objective is to enhance the relevance, reliability, and comparability of financial statements by prescribing the basis of preparation, including criteria for selecting and changing accounting policies and the treatment of estimates and errors.

3

Scope

This standard applies to selecting and applying accounting policies and accounting for changes in policies, changes in estimates, and corrections of prior period errors.

5

Definitions

Key terms are defined: Accounting policies are specific principles and practices applied in preparing statements. Accounting estimates are monetary amounts subject to measurement uncertainty. Prior period errors are omissions/misstatements arising from failure to use reliable information available at the time. Retrospective application involves applying a new policy as if it had always been applied. Prospective application involves recognising effects in current and future periods.

6A

Fair Presentation

Financial statements shall present fairly the financial position, financial performance, and cash flows. This requires faithful representation of transactions in accordance with the Conceptual Framework. Compliance with IFRSs is presumed to result in fair presentation.

6B

Statement of Compliance

An entity whose financial statements comply with IFRS Accounting Standards shall make an explicit and unreserved statement of such compliance in the notes.

6E

Departure from IFRS

In extremely rare circumstances where compliance with an IFRS would be so misleading as to conflict with the objective of financial statements, an entity shall depart from that requirement if the regulatory framework permits, disclosing the nature, reason, and financial effect of the departure.

6K

Going Concern

Management shall assess the entity's ability to continue as a going concern. Financial statements are prepared on a going concern basis unless management intends to liquidate or cease trading. Material uncertainties regarding going concern must be disclosed.

6M

Accrual Basis

An entity prepares its financial statements, except for cash flow information, using the accrual basis of accounting.

7

Selection of Policies

When an IFRS specifically applies to a transaction, the accounting policy is determined by applying that IFRS.

8

Immateriality

Policies need not be applied when the effect is immaterial. However, it is inappropriate to make immaterial departures to achieve a particular presentation.

10

Absence of Specific IFRS

In the absence of a specific IFRS, management uses judgement to develop a policy that results in information that is relevant to decision-making needs and reliable (faithful, neutral, prudent, and complete).

11

Hierarchy of Guidance

In making judgements, management refers to sources in descending order: (a) requirements in IFRSs dealing with similar issues; and (b) definitions and concepts in the Conceptual Framework.

12

Other Sources

Management may also consider recent pronouncements of other standard-setting bodies using a similar conceptual framework, other accounting literature, and industry practices, provided they do not conflict with IFRS sources.

13

Consistency

An entity shall select and apply accounting policies consistently for similar transactions, unless an IFRS requires or permits categorisation of items for which different policies may be appropriate.

14

Changes in Policy

An entity shall change an accounting policy only if the change is required by an IFRS or results in the financial statements providing reliable and more relevant information.

16

Not Changes in Policy

The application of a policy to transactions that differ in substance from previous ones, or to new transactions that did not occur previously, are not changes in accounting policies.

17

Revaluation

The initial application of a policy to revalue assets under IAS 16 or IAS 38 is a change in policy dealt with as a revaluation under those standards, not IAS 8.

19

Applying Policy Changes

A change resulting from the initial application of an IFRS is accounted for in accordance with specific transitional provisions. If none exist, or for voluntary changes, the change is applied retrospectively.

22

Retrospective Application

When applied retrospectively, the entity adjusts the opening balance of each affected component of equity for the earliest prior period presented and other comparative amounts as if the new policy had always been applied.

23

Limitations on Retrospective

Retrospective application is required unless it is impracticable to determine the period-specific or cumulative effects of the change.

24

Impracticable Period-Specific

If determining period-specific effects is impracticable, the new policy is applied to the carrying amounts of assets and liabilities at the beginning of the earliest period for which retrospective application is practicable.

25

Impracticable Cumulative

If determining the cumulative effect is impracticable, the entity adjusts comparative information to apply the new policy prospectively from the earliest date practicable.

27

Impracticability Defined

If an entity cannot determine the cumulative effect for all prior periods, it applies the new policy prospectively from the earliest practicable date, disregarding prior cumulative adjustments.

27A

Disclosure of Policies

An entity shall disclose material accounting policy information. Information is material if it can reasonably be expected to influence decisions of primary users.

27C

Materiality Judgement

Policy information is likely material if it relates to material transactions and involves a change in policy, a choice between options, absence of a specific IFRS, significant judgements, or complex accounting.

27G

Disclosure of Judgements

An entity shall disclose the judgements (apart from estimations) that management has made in applying accounting policies which have the most significant effect on recognised amounts.

28

Disclosure: New IFRS

When initial application of an IFRS has an effect, the entity discloses the title, nature of change, transitional provisions, and the amount of the adjustment for each line item and earnings per share for current and prior periods presented.

29

Disclosure: Voluntary Change

For voluntary changes, the entity discloses the nature of the change, reasons why it provides reliable and more relevant information, and the amount of the adjustment for line items and earnings per share.

30

Issued but Not Effective

When an entity has not applied a new IFRS that is issued but not yet effective, it must disclose this fact and known or reasonably estimable information relevant to assessing the possible impact of application.

31A

Estimation Uncertainty

An entity shall disclose information about assumptions and major sources of estimation uncertainty at the end of the reporting period that have a significant risk of resulting in a material adjustment to carrying amounts within the next financial year.

32

Accounting Estimates

Accounting estimates involve measurement uncertainty where items cannot be observed directly (e.g., loss allowances, net realisable value, fair value, depreciation, warranty provisions).

34

Changes in Estimates

An entity may need to change an estimate due to new information or more experience. This does not relate to prior periods and is not a correction of an error.

36

Prospective Application

The effect of a change in an accounting estimate is recognised prospectively in profit or loss in the period of the change (if it affects that period only) or the period of change and future periods (if it affects both).

39

Disclosure of Estimates

An entity shall disclose the nature and amount of a change in an accounting estimate that has an effect in the current period or is expected to have an effect in future periods.

41

Errors

Errors can arise in recognition, measurement, presentation, or disclosure. Financial statements do not comply with IFRSs if they contain material errors or intentional immaterial errors.

42

Retrospective Restatement

Material prior period errors are corrected retrospectively in the first set of financial statements authorised for issue after discovery by restating comparative amounts or opening balances of the earliest period presented.

43

Limitations on Restatement

A prior period error is corrected by retrospective restatement unless it is impracticable to determine the period-specific or cumulative effects.

44

Impracticable Restatement

If determining period-specific effects is impracticable, the entity restates opening balances for the earliest period practicable. If determining cumulative effects is impracticable, the entity restates comparatives prospectively from the earliest date practicable.

49

Disclosure of Errors

An entity shall disclose the nature of the prior period error, the amount of the correction for each line item and earnings per share for each period presented, and the amount of the correction at the beginning of the earliest prior period presented.

50

Impracticability Circumstances

It is impracticable to apply a change retrospectively or restate for an error if data was not collected in the prior period and cannot be recreated, or if it requires significant estimates where it is impossible to distinguish information available at the time from hindsight.

53

No Hindsight

Hindsight should not be used when applying a new policy to or correcting amounts for a prior period, particularly regarding assumptions about management's intentions or estimates.

54

Effective Date

The standard applies for annual periods beginning on or after 1 January 2005. Amendments regarding definitions of material and accounting estimates have later effective dates (2020 and 2023 respectively).