Ind AS 8 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Ind AS 8 governs how entities select accounting policies and account for their changes. Policy changes and prior period errors are corrected retrospectively by restating comparatives, whereas changes in accounting estimates are recognised prospectively in the period of change.
Overview
Ind AS 8, notified under the Companies (Indian Accounting Standards) Rules, 2015, enhances the relevance, reliability and comparability of financial statements by prescribing consistent criteria for selecting and changing accounting policies, the treatment of changes in estimates, and the correction of errors. Its central discipline is distinguishing between policies (retrospective) and estimates (prospective).
Selecting Accounting Policies
When an Ind AS specifically applies to a transaction, its policy is determined by that standard. Where no standard specifically applies, management uses judgement to develop a policy that results in relevant and reliable information, referring in descending order to: Ind AS dealing with similar and related issues, and the definitions, recognition criteria and measurement concepts in the Conceptual Framework. Management may also consider the pronouncements of other standard-setters with a similar conceptual framework, and accepted industry practice, to the extent not in conflict.
Changes in Accounting Policies
An entity changes a policy only if required by a standard, or if the change gives more relevant and reliable information. Such changes are applied retrospectively: the opening balance of retained earnings (or other affected equity) for the earliest period presented is adjusted, and comparatives are restated as though the new policy had always been in force — unless retrospective application is impracticable, in which case it is applied from the earliest practicable date.
Changes in Accounting Estimates
Estimates — such as bad debt provisions, useful lives, residual values, warranty obligations and fair values — are revised as new information emerges. Because estimates are inherent to accrual accounting, a revision is not a correction of an error. Changes are recognised prospectively in profit or loss of the period of change and future periods affected. A change in depreciation method is specifically treated as a change in estimate.
Prior Period Errors
Errors are omissions and misstatements arising from failure to use, or misuse of, reliable information that was available and could reasonably have been obtained. Material prior period errors are corrected retrospectively in the first financial statements approved for issue after their discovery — by restating comparative amounts for the prior period(s), or restating opening balances of assets, liabilities and equity for the earliest period presented.
Worked Example
A company had been capitalising certain routine repairs of ₹8,00,000 per year in error. On discovering this, and treating it as a prior period error, it derecognises the wrongly capitalised amounts, restates the opening retained earnings of the earliest comparative year by the cumulative net-of-tax effect, and restates the comparative statement of profit and loss. Separately, it revises the useful life of a machine from 10 to 8 years — a change in estimate — so the remaining carrying amount is depreciated over the reduced remaining life prospectively, with no restatement of prior years.
Disclosures
For policy changes and error corrections, entities disclose the nature, the amount of adjustment for each line item and, where practicable, basic and diluted EPS. For estimate changes, they disclose the nature and amount affecting the current period and, if practicable, future periods.
Key Differences from AS 5
Ind AS 8 mandates retrospective restatement of prior period errors and policy changes, unlike AS 5 which routed such items largely through current-year profit or loss. This significantly improves period-to-period comparability.