IASB proposes changes around accounting policies and estimates

By Jeff Drew

The International Accounting Standards Board (IASB) on Tuesday released for comment a set of proposed IFRS statement amendments that would help companies distinguish accounting policies from accounting estimates.

Issuance of the exposure draft, which proposes amendments to International Accounting Standard (IAS) No. 8, comes after the IFRS Interpretations Committee reported that companies were applying a diversity of approaches to the implementation of IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors. The distinction is important because while changes in accounting estimates often affect a company’s profit or loss, changes in accounting policies usually do not, the IASB said in a news release.

The proposed amendments would clarify the following:

  • How accounting policies and accounting estimates relate to each other by (1) explaining that accounting estimates are used in applying accounting policies; and (2) making the definition of accounting policies clearer and more concise;
  • 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
  • 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.

Comments on the ED, which will be accepted through Jan. 15, can be made on the IASB website.

Jeff Drew (Jeff.Drew@aicpa-cima.com) is a JofA senior editor.

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