Understanding the distinction between accounting policies and estimates is vital for transparent and accurate financial statement presentation. It’s crucial to differentiate between the two because changes in accounting policies mandate retrospective application, while changes in accounting estimates are applied prospectively.

 Before the amendments, IAS 8 contained a definition for accounting policies and a definition for a change in accounting estimates. The combination of a definition of accounting policies with a definition of a change in accounting estimates obscured the distinction between both items. To make the distinction clearer, a change in accounting estimates is replaced with a definition of accounting estimates. Under the revised standard, it’s important to note that a change in accounting estimate resulting from new information or developments is not considered a correction of an error. Additionally, changes in inputs or measurement techniques used in developing accounting estimates are treated as changes in accounting estimates, provided they aren’t rectifications of prior period errors.

The revised Standard lists the following items as examples of accounting estimates:

• A loss allowance for expected credit losses (IFRS 9 Financial Instruments)

• The net realizable value of an item of inventory (IAS 2 Inventories)

• The fair value of an asset or liability (IFRS 13 Fair Value Measurement)

• The depreciation expense for an item of property, plant, and equipment (IAS 16 Property, Plant and Equipment)

• A provision for warranty obligations (IAS 37 Provisions, Contingent Liabilities and Contingent Assets) In developing an accounting estimate, an entity uses estimation techniques (for example to estimate the loss allowance for expected credit losses) and/or valuation techniques (for example to measure the fair value of an asset or liability).