United States

Distinguishing accounting policies from accounting estimates


There currently is diversity in the way entities distinguish accounting policies from accounting estimates, which has financial statement consequences because changes in accounting estimates often affect a company’s profit or loss, while changes in accounting policies generally do not. To help entities distinguish accounting policies from accounting estimates, the International Accounting Standards Board recently published proposed narrow-scope amendments to International Accounting Standard (IAS) 8, Accounting Policies, Changes in Accounting Estimates and Errors. The proposed amendments:

  • Explain that accounting estimates are used in applying accounting policies
  • Make the definition of accounting policies clearer and more concise
  • Clarify 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
  • Clarify that, in applying IAS 2, Inventories, selecting the first-in, first-out cost formula or the weighted average cost formula for interchangeable inventories constitutes selecting an accounting policy

The Exposure Draft, Accounting Policies and Accounting Estimates – Proposed amendments to IAS 8, is available for comment until January 15, 2018.