Distinguishing between accounting policies and accounting estimates is important because changes in accounting policies are generally applied retrospectively, while changes in accounting estimates are applied prospectively. The approach taken can therefore affect both the reported results and trends between periods.

The International Accounting Standards Board (IASB) has noted diversity in practice in making this distinction because the term accounting estimates was not defined and the previous definition of a change in accounting estimate was unclear.

The IASB has now issued amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to clarify how companies should distinguish changes in accounting policies from changes in accounting estimates, with a primary focus on the definition of and clarifications on accounting estimates.

“The focus of the amendments is solely on the clarifications regarding accounting estimates rather than accounting policies. The addition of a definition of accounting estimates plugs a gap and along with further clarifications could help reduce the diversity in practice.”

The amendments introduce a new definition for accounting estimates: clarifying that they are monetary amounts in the financial statements that are subjected to measurement uncertainty.

The amendments also clarify the relationship between accounting policies and accounting estimates by specifying that a company develops an accounting estimate to achieve the objective set out by an accounting policy.

Developing an accounting estimate includes both:

– Selecting a measurement technique (estimation or valuation technique) – e.g. an estimation technique used to measure a loss allowance for expected credit losses when applying IFRS 9 Financial Instruments; and

– Choosing the inputs to be used when applying the chosen measurement technique – e.g. the expected cash outflows for determining a provision for warranty obligations when applying IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

The effects of changes in such inputs or measurement techniques are changes in accounting estimates.

The definition of accounting policies remains unchanged.

The amendments are effective for periods beginning on or after January 1st 2023, with earlier application permitted, and will apply prospectively to changes in accounting estimates and changes in accounting policies occurring on or after the beginning of the first annual reporting period in which the company applies the amendments.

 

  Eduardo Viana – Sócio Diretor de Auditoria

Atua há mais de 15 anos nas áreas de Auditoria, Mercado de Capitais, IPO , Contabilidade e riscos. Possui experiência em auditoria externa, fusões e aquisições, controles internos e fraudes, IFRS, USGAAP, BRGAAP em empresas nacionais e multinacionais de diversos segmentos. Registrado no CRCSP, no CNAI e na Comissão de Valores Mobiliários (CVM). Formação de Empreendedorismo em Babson College e inovação em Berkeley.

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