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[Link]-8
ACCOUNTING POLICIES, CHANGES IN ACCOUNTING
ESTIMATES AND ERRORS
I. OBJECTIVE
1. To prescribe the criteria for selecting and changing accounting Policies
2. To prescribe the accounting treatment and disclosure of changes in accounting policies.
3. To prescribe the accounting treatment and disclosure of changes in accounting estimates.
4. To prescribe the accounting treatment and disclosure of corrections of errors.
5. To provide better base for inter-firm and intra-firm comparison.

II. SCOPE
This standard shall be applied in
selecting and applying accounting policies;
• accounting for changes in accounting policies;
• accounting for changes in accounting estimates; and
• accounting for corrections of prior period errors.

However, tax effects of retrospective application of accounting policy changes and

correction of prior period errors are not dealt with in this standard. The tax effects of these
items are dealt with Ind AS 12, 'Income Taxes'.

III. DEFINITIONS
1. Accounting policies are the specific principles, bases, conventions, rules and
practices applied by an entity in preparing and presenting financial statements.
2. A change in accounting estimate is an adjustment Of the carrying amount of an asset
or a liability, or the amount of the periodic consumption of an asset, that results from

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the assessment of the present status of, and expected future benefits and obligations
associated with, assets and liabilities. Changes in accounting estimates result from
new information or new developments and, accordingly, are not corrections of errors.
3. Retrospective application is applying a new accounting policy to transactions, other
events and conditions as if that policy had always been applied.
4. Retrospective restatement is correcting the recognition, measurement and
disclosure of amounts of elements of financial statements as if a prior period error
had never occurred.
5. Prospective application of a change in accounting policy and of recognizing the
effect of a change in an accounting estimate, respectively, are:
(a) applying the new accounting policy to transactions, other events and conditions
occurring after the date as at which the policy is changed; and
(b) recognizing the effect of the change in the accounting estimate in the current and
future periods affected by the change.

IV. SELECTION AND APPLICATION OF ACCOUNTING POLICIES

• When an Ind AS specifically applies to a transaction, other event or condition, the
accounting policy or policies applied to that item shall be determined by applying the
Ind AS.
• In the absence of an Ind AS that specifically applies to a transaction, other event or
condition, management shall use its judgement in developing and applying an
accounting policy that results in information that is:
(a) relevant to the economic decision-making needs of users; and
(b) reliable in that the financial statements:

A. CHANGES IN ACCOUNTING POLICIES

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An entity shall change an accounting policy only if the change:

(a) is required by an Ind AS; or
(b) results in the financial statements providing reliable and more relevant information about
the effects of transactions, other events or conditions on the entity's financial position,
financial performance or cash flows.

B. HOW TO APPLY THE CHANGES IN ACCOUNTING POLICIES?

While discussing the process for application of changes of accounting policies, Ind AS 8,
deals with two situations:
1. An entity shall account for a change in accounting policy resulting from the initial
application of an Ind AS in accordance with the specific transitional provisions, if any, in
that Ind AS.
If a change in accounting policy is due to a new Ind AS, then, generally the standard itself
provides the transitional provisions i.e., provisions applicable on initial application of the
standard, such as method of application (retrospective or prospective or modified
retrospective), availability of any transitional relief etc. In such cases, the entity needs to
follow the transitional provisions accordingly.
2. When an entity changes an accounting policy upon initial application of an Ind AS that
does not include specific transitional provisions applying to that change, or changes an
accounting policy voluntarily, it shall apply the change retrospectively.
If the change in accounting policy is made voluntarily or where the Ind AS is not containing
transitional provisions, then the accounting policy needs to be applied retrospectively.

V. CHANGE IN ACCOUNTING ESTIMATES

As a result of the uncertainties inherent in business activities, many items in financial
statements cannot be measured with precision but can only be estimated. Estimation

From the desk of Nemani Satish, M. Com., M.A. Eco., NET-JRF, KSET & APSET, Research Scholar,
Department of Studies in Commerce, VSK University, Ballari. Material Sources: ICAI, ICSI &
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involves judgements based on the latest available and reliable information. For example,
estimates may be required of:
i. bad debts;
ii. inventory obsolescence;
iii. the fair value of financial assets or financial liabilities;
The use of reasonable estimates is an essential part of the preparation of financial statements
and does not undermine their reliability.
A. ACCOUNTING TREATMENT FOR A CHANGE IN ESTIMATE
The effect of change in an accounting estimate, except to the extent that the change results
in change in assets, liabilities or equity, shall be recognised prospectively by including it in
profit or loss in:
(a) the period of the change, if the change affects that period only; or
(b) the period of the change and future periods, if the change affects both.
A change in an accounting estimate may affect only the current period's profit or loss, or
the profit or loss of both the current period and future periods.

To the extent that a change in an accounting estimate gives rise to changes in assets and
liabilities, or relates to an item of equity, it shall be recognised by adjusting the carrying
amount of the related asset, liability or equity item in the period of the change.
Prospective recognition of the effect of a change in an accounting estimate means that the
change is applied to transactions, other events and conditions from the date of the change in
estimate.

VI. ERRORS
Ind AS 8 deals with the treatment of errors that have taken place in past, but were not
discovered at that time. Subsequently, when they are discovered, it is necessary to correct

From the desk of Nemani Satish, M. Com., M.A. Eco., NET-JRF, KSET & APSET, Research Scholar,
Department of Studies in Commerce, VSK University, Ballari. Material Sources: ICAI, ICSI &
epgpathsala. Books: Ind-AS books by [Link] &[Link] Taneja; CA. Ravikanth M and others.
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such errors in the financial statements and make sure that the financial statements present
relevant and reliable information in the period in which they are discovered.

As per the definition given in Ind AS 8, Prior period errors are omissions from, and
misstatements in, the entity's financial statements for one or more prior periods arising from
a failure to use, or misuse of, reliable information that:
(a) was available when financial statements for those periods were approved for issue;
and
(b) could reasonably be expected to have been obtained and taken into account in the
preparation and presentation of those financial statements. Such errors include the effects of
mathematical mistakes, mistakes in applying accounting policies, oversights or
misinterpretations of facts, and fraud.
Errors can arise in respect of the recognition, measurement, presentation or disclosure of
elements of financial statements. Financial statements do not comply with Ind AS if they
contain either material errors or immaterial errors made intentionally to achieve a particular
presentation of an entity's financial position, financial performance or cash flows.

A. Common types of Errors

(i) Mathematical Mistakes: In accounting terms, generally the errors are called as error of
commission. Wrong calculations, carry forward of wrong balances and errors in totals are
few examples of mathematical errors.
(ii) Mistakes in applying policies: Specific standards may prescribe method of applying
specific policies for particular nature of transaction. For example, as a general rule, assets
and liabilities and income and expenses should not be offset, unless otherwise specifically
required or permitted in an Ind AS. If a receivable from another entity and payable to that
entity are offset without any currently existing legally enforceable right to set off the

From the desk of Nemani Satish, M. Com., M.A. Eco., NET-JRF, KSET & APSET, Research Scholar,
Department of Studies in Commerce, VSK University, Ballari. Material Sources: ICAI, ICSI &
epgpathsala. Books: Ind-AS books by [Link] &[Link] Taneja; CA. Ravikanth M and others.
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recognised amounts, then, it will be an error while applying the policies, since it is against
the principles of offset prescribed in Ind AS 32, 'Financial Instruments: Presentation'.
(iii) Misinterpretations of facts: Ind AS 10 deals with treatment of the events after the
reporting period. Whether the event is an adjusting event or a non-adjusting event depends
on whether that event provides evidence of a condition existing at the end of the reporting
period. Sometimes, this requires judgement of the management and may result into
misinterpretation of facts, if not dealt with properly.
(iv) Omissions: The mistakes that happened due to omission to record a material
transaction, perhaps, due to oversight.
(v) Frauds: Major theft undetected in the past.

B. TREATMENT OF ERRORS
Financial statements do not comply with Ind AS if they contain either material errors or
immaterial errors made intentionally to achieve a particular presentation of an entity's
financial position, financial performance or cash flows.
i. Potential Errors of Current Period
Potential current period errors discovered in that period are corrected before the financial
statements are approved for issue.
ii. Prior period errors discovered subsequently
Material errors are sometimes not discovered until a subsequent period, and these prior
period errors are corrected in the comparative information presented in the financial
statements for that subsequent period.
Following is the snapshot of how the balance sheet and statement of profit and loss is
presented after correction of prior period errors:

From the desk of Nemani Satish, M. Com., M.A. Eco., NET-JRF, KSET & APSET, Research Scholar,
Department of Studies in Commerce, VSK University, Ballari. Material Sources: ICAI, ICSI &
epgpathsala. Books: Ind-AS books by [Link] &[Link] Taneja; CA. Ravikanth M and others.
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IND AS- 10
EVENTS AFTER THE REPORTING PERIOD

I. OBJECTIVE
It is impossible for any company to present the information on the same day, as the day of
reporting. There would always be a gap between the end of the period for which financial
statements are presented and the date on which the same will actually be made available to
the public.
The objective of this standard is to prescribe.
1. When an entity should adjust its financial statements for the events after the reporting
period.
2. The disclosures that an entity should give about the date when the financial statements
were approved for issue and about events after the reporting period.
The standard also requires that an entity should not prepare its financial statements on a
going concern basis if events after the reporting period indicate that the going concern
assumption is no longer appropriate.

II. DEFINITIONS
1. Events after the Reporting Period
Events after the reporting period are those events, favourable and unfavorable, that occur
between the end of the reporting period and the date when the financial statements are
approved by the Board of Directors (in case of a company) and by the corresponding
approving authority (in case of any other entity) for issue. This is depicted in the below

III. TYPES OF EVENTS

The 'events after the reporting period' are classified into two categories

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(i) Adjusting Events: Adjusting events are those that provide evidence of conditions
that existed at the end of the reporting period (adjusting events after the reporting
period); and
(ii) Non-Adjusting Events: Non-adjusting events are those that are indicative of
conditions that arose after the reporting period (non-adjusting events after the
reporting period).

IV. RECOGNITION AND MEASUREMENT OF ADJUSTING EVENTS

An entity shall adjust the amounts recognised in its financial statements to reflect adjusting
events after the reporting period.

The following are examples of adjusting events after the reporting period that require an
entity to adjust the amounts recognised in its financial statements, or to recognise items that
were not previously recognised:
(a) The settlement after the reporting period of a court case that confirms that the entity had
a present obligation at the end of the reporting period. The entity adjusts any previously
recognised provision related to this court case in accordance with Ind AS 37, 'Provisions,
Contingent Liabilities and Contingent Assets' or recognises a new provision.
(b) The receipt of information after the reporting period indicating that an asset was impaired
at the end of the reporting period, or that the amount of a previously recognised impairment
loss for that asset needs to be adjusted. For example:
(c) The determination after the reporting period of the cost of assets purchased, or the
proceeds from assets sold, before the end of the reporting period. Same principle can be
applied for sale of assets as well.
(d) The determination after the reporting period of the amount of profit-sharing or bonus
payments, if the entity had a present legal or constructive obligation at the end of the

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epgpathsala. Books: Ind-AS books by [Link] &[Link] Taneja; CA. Ravikanth M and others.
Introduction to Indian Accounting Standards Module-05| IAS
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reporting period to make such payments as a result of events before that date (see Ind AS
19, Employee Benefits).
(e) The discovery of fraud or errors that show that the financial statements are incorrect.

V. ACCOUNTING TREATMENT AND DISCLOSURE OF NON-ADJUSTING

EVENTS AFTER THE REPORTING PERIOD
An entity shall not adjust the amounts recognised in its financial statements to reflect non-
adjusting events after the reporting period.
An example of a non-adjusting event after the reporting period is a decline in fair value of
investments between the end of the reporting period and the date when the financial
statements are approved for issue. The decline in fair value does not normally relate to the
condition of the investments at the end of the reporting period but reflects circumstances
that have arisen subsequently. Therefore, an entity does not adjust the amounts recognised
in its financial statements for the investments. Similarly, the entity does not update the
amounts disclosed for the investments as at the end of the reporting period, although it may
need to give additional disclosure as required under paragraph 21 of Ind AS 10.

From the desk of Nemani Satish, M. Com., M.A. Eco., NET-JRF, KSET & APSET, Research Scholar,
Department of Studies in Commerce, VSK University, Ballari. Material Sources: ICAI, ICSI &
epgpathsala. Books: Ind-AS books by [Link] &[Link] Taneja; CA. Ravikanth M and others.
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IND AS- 108

OPERATING SEGMENTS
I. OBJECTIVE
Ind AS 108 requires an entity to disclose information to enable the stakeholders to have
insight into the entity's operations from the same perspective as that of its management. For
instance, in case of an entity engaged in multiple lines of business/ business activities (e.g.,
engineering, financial services and IT), the users of financial statements must have the
information about the performance of each of its 'business activities' as perceived by
management in order to make better and more informed decisions about their investments
in the entity as a whole.

II. IMPORTANT POINTS

1. OPERATING SEGMENTS
An operating segment is a component of an entity:
(a) that engages in business activities from which it may earn revenues and incur expenses
(including revenues and expenses relating to transactions with other components of the same
entity);
(b) whose operating results are regularly reviewed by the entity's chief operating decision
maker (CODM) to make decisions about resources to be allocated to the segment and assess
its performance; and
(c) for which discrete financial information is available.
An operating segment may engage in business activities for which it has yet to earn
revenues, for example, start-up operations may be operating segments before earning
revenues.

From the desk of Nemani Satish, M. Com., M.A. Eco., NET-JRF, KSET & APSET, Research Scholar,
Department of Studies in Commerce, VSK University, Ballari. Material Sources: ICAI, ICSI &
epgpathsala. Books: Ind-AS books by [Link] &[Link] Taneja; CA. Ravikanth M and others.
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2. REPORTABLE SEGMENTS
An entity should report separately information about each operating segment that:
(a) has been identified or results from aggregating two or more of those segments; and
(b) exceeds the quantitative thresholds.
Standard specifies other situations in which separate information about an operating
segment should be reported.

3. AGGREGATION CRITERIA
Operating segments Often exhibit similar long-term financial performance if they have
similar economic characteristics. For example, similar long-term average gross margins for
two operating
segments would be expected if their economic characteristics were similar. Two or more
operating segments may be aggregated into a single operating segment if aggregation is

From the desk of Nemani Satish, M. Com., M.A. Eco., NET-JRF, KSET & APSET, Research Scholar,
Department of Studies in Commerce, VSK University, Ballari. Material Sources: ICAI, ICSI &
epgpathsala. Books: Ind-AS books by [Link] &[Link] Taneja; CA. Ravikanth M and others.
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consistent with the core principle of Ind AS 108, the segments have similar economic
characteristics, and the segments are similar in each of the following respects:
a) the nature of the products and services;
b) the nature of the production processes;
c) the type or class of customer for their products and services;
d) the methods used to distribute their products or provide their services; and
if applicable, the nature of the regulatory environment, for example, banking, insurance or
public utilities.
4. QUANTITATIVE THRESHOLDS
An entity should report separately information about an operating segment that meets any
of the following quantitative thresholds:
(a) Its reported revenue, including both sales to external customers and intersegment sales
or transfers, is 10% or more Of the combined revenue, internal and external, of all operating
segments.
(b) The absolute amount of its reported profit or loss is 10% or more of the greater, in
absolute amount, of the combined reported profit of all operating segments that did not
report a loss and
(ii) the combined reported loss of all operating segments that reported a loss.
(c) Its assets are 10% or more of the combined assets of all operating segments. Operating
segments that do not meet any of the quantitative thresholds may be considered reportable
and separately disclosed, if management believes that information about the segment would
be useful to users of the financial statements.

Note
• External revenue of reportable segments must be 75% of total external revenue
of the entity. If the total external revenue reported by operating segments constitutes

From the desk of Nemani Satish, M. Com., M.A. Eco., NET-JRF, KSET & APSET, Research Scholar,
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epgpathsala. Books: Ind-AS books by [Link] &[Link] Taneja; CA. Ravikanth M and others.
Introduction to Indian Accounting Standards Module-05| IAS
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less than 75% of the entity's revenue, additional operating segments should be
identified as reportable segments (even if they do not meet the criteria) until at least
75% of the entity's revenue is included in reportable segments.
• Operating segments that do not meet any of the quantitative thresholds may be
considered reportable, and separately disclosed, if information about the segment is
useful to users.

From the desk of Nemani Satish, M. Com., M.A. Eco., NET-JRF, KSET & APSET, Research Scholar,
Department of Studies in Commerce, VSK University, Ballari. Material Sources: ICAI, ICSI &
epgpathsala. Books: Ind-AS books by [Link] &[Link] Taneja; CA. Ravikanth M and others.
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IND AS- 3
INTERIM FINANCIAL REPORTING
I. OBJECTIVE
The objective of this Standard is to prescribe
a) the minimum content of an interim financial report
b) the principles for recognition and measurement in complete or condensed financial
statements for an interim period.

II. DEFINITIONS
1. Interim period is a financial reporting period shorter than a full financial year.
2. Interim financial report means a financial report containing either a complete set of
financial statements (as described in Ind AS 1, Presentation of Financial Statements),
or a set of condensed financial statements (as described in this Standard) for an
interim period.
III. CONTENTS OF AN INTERIM FINANCIAL REPORT
An Interim Financial Report shall include, at minimum, the following:
• A condensed balance sheet
• A condensed statement of profit and loss
• A condensed statement of changes in equity
• A condensed statement of cash flows
• Notes, comprising significant accounting policies and other explanatory information

IV. SIGNIFICANT EVENTS AND TRANSACTIONS

• An entity shall include in its interim financial report an explanation of events and
transactions that are significant to an understanding of the changes in financial

From the desk of Nemani Satish, M. Com., M.A. Eco., NET-JRF, KSET & APSET, Research Scholar,
Department of Studies in Commerce, VSK University, Ballari. Material Sources: ICAI, ICSI &
epgpathsala. Books: Ind-AS books by [Link] &[Link] Taneja; CA. Ravikanth M and others.
Introduction to Indian Accounting Standards Module-05| IAS
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position and performance of the entity since the end of the last annual reporting
period.
• Information disclosed in relation to those events and transactions shall update the
relevant information presented in the most recent annual financial report.
• A user of an entity's interim financial report will have access to the most recent annual
financial report of that entity. Therefore, it is unnecessary for the notes to an interim
financial report to provide relatively insignificant updates to the information that was
reported in the notes in the most recent annual financial report.

V. Periods for which interim financial statements are required to be presented

Interim reports shall include interim financial statements (condensed or complete) for
periods as follows:
(a) balance sheet as of the end of the current interim period and a comparative balance sheet
as of the end of the immediately preceding financial year.
(b) statements of profit and loss for the current interim period and cumulatively for the
current financial year to date, with comparative statements of profit and loss for the
comparable interim periods (current and year-to-date) of the immediately preceding
financial year.
(c) statement of changes in equity cumulatively for the current financial year to date, with a
comparative statement for the comparable year-to-date period of the immediately preceding
financial year.
(d) statement of cash flows cumulatively for the current financial year to date, with a
comparative statement for the comparable year-to-date period of the immediately preceding
financial year.

From the desk of Nemani Satish, M. Com., M.A. Eco., NET-JRF, KSET & APSET, Research Scholar,
Department of Studies in Commerce, VSK University, Ballari. Material Sources: ICAI, ICSI &
epgpathsala. Books: Ind-AS books by [Link] &[Link] Taneja; CA. Ravikanth M and others.
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For an entity whose business is highly seasonal, financial information for the twelve months
up to the end of the interim period and comparative information for the prior twelve-month
period may be useful.

VI. RECOGNITION AND MEASUREMENT

1. Same accounting policies as annual Recognition and Measurement
• An entity shall apply the same accounting policies in its interim financial statements
as are applied in its annual financial statements, except for accounting policy changes
made after the date of the most recent annual financial statements that are to be
reflected in the next annual financial statements.
• The frequency of an entity's reporting (annual, half- yearly, or quarterly) shall not
affect the measurement of its annual results. TO achieve that objective, measurements
for interim reporting purposes shall be made on a year-to-date basis.
• Year-to-date measurements may involve changes in estimates of amounts reported in
prior interim periods of the current financial year. But the principles for recognising
assets, liabilities, income, and expenses for interim periods are the same as in annual
financial statements.
2. Revenues received cyclically, occasionally or seasonally Costs incurred unevenly
during the financial year
• Revenues that are received seasonally, cyclically, or occasionally within a
financial year shall not be anticipated or deferred as of an interim date if
anticipation or deferral would not be appropriate at the end of the entity's financial
year.
Example: Dividend revenue, royalties, and government grants.
• Certain entities earn more revenue in certain interim periods of a financial year
than other interim periods. Such revenues are recognised when they occur.

From the desk of Nemani Satish, M. Com., M.A. Eco., NET-JRF, KSET & APSET, Research Scholar,
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3. Costs that are incurred unevenly during an entity's financial

• Costs that are incurred unevenly during an entity's financial year shall be
anticipated or deferred for interim reporting purposes if, and only if, it is also
appropriate to anticipate or defer that type of cost at the end of the financial year.
4. Use of estimates
• To ensure that the resulting information is reliable and that all material financial
information that is relevant to an understanding of the financial position or
performance of the entity is appropriately disclosed.
• The preparation of interim financial reports requires a greater use of estimation
methods than annual financial reports.

From the desk of Nemani Satish, M. Com., M.A. Eco., NET-JRF, KSET & APSET, Research Scholar,
Department of Studies in Commerce, VSK University, Ballari. Material Sources: ICAI, ICSI &
epgpathsala. Books: Ind-AS books by [Link] &[Link] Taneja; CA. Ravikanth M and others.