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The purpose of the proposed amendments is to help companies distinguish accounting policies from accounting estimates.
The distinction is important because changes in accounting estimates often affect a company’s profit or loss, but changes in accounting policies generally do not.
The proposed amendments aim to help entities distinguish accounting policies from accounting estimates. More specifically, the proposed amendments would clarify:
(a) how accounting policies and accounting estimates relate to each other, by:
(i) explaining that accounting estimates are used in applying accounting
policies; and
(ii) making the definition of accounting policies clearer and more concise;
(b) 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
(c) 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.
The IASB welcomes feedback on its view that the amendments will make the distinction clearer.
The Exposure Draft Accounting Policies and Accounting Estimates (Proposed amendments to IAS 8) is open for comment until 15 January 2018.