An accounting number can change for three very different reasons: management received better information, the company changed an accounting policy, or the earlier financial statements contained an error. Ind AS 8 gives each case a different treatment. The first is usually prospective, while policy changes and material prior-period errors are usually dealt with retrospectively, subject to the Standard’s transition and impracticability rules.
The current ICAI text of Ind AS 8 defines accounting estimates as monetary amounts in financial statements that are subject to measurement uncertainty. This definition, and the related guidance on inputs and measurement techniques, reflect the amendment notified in 2023 and included in ICAI’s 2025–26 compendium.
First decide what has actually changed
| What changed? | Typical classification | Usual accounting treatment |
|---|---|---|
| An input, assumption or measurement technique changed because of new information or experience | Change in accounting estimate | Recognise prospectively from the date of change |
| The principle, basis, convention, rule or practice used to prepare the financial statements changed | Change in accounting policy | Follow the new Ind AS transition rules; otherwise usually apply retrospectively |
| Reliable information available when the earlier statements were approved was not used, or was misused | Prior-period error | Correct a material error retrospectively, unless impracticable |
The label used in a note or board paper does not decide the answer. The underlying facts do. A finance team should therefore document the original information, the new information and the date on which that new information became available.
What counts as an accounting estimate?
An accounting policy may require a number that cannot be observed directly. The company then uses judgement, assumptions and reliable information to develop an estimate that meets the policy’s measurement objective. Ind AS 8 lists examples such as an expected-credit-loss allowance, inventory net realisable value, fair value, depreciation expense and a warranty provision.
Measurement techniques include both estimation techniques and valuation techniques. An estimate may change when an input changes or when a better measurement technique is adopted. That change remains an estimate change unless it results from correcting a prior-period error.
For example, a company may retain the same expected-credit-loss policy but revise default rates after receiving newer customer-payment data. The policy has not changed; the estimate has. Similarly, a revised useful life based on new operating experience is normally an estimate change.
When a change is not merely an estimate
A change in the measurement basis is a change in accounting policy. Ind AS 8 permits a policy change when an Ind AS requires it or when a voluntary change produces reliable and more relevant information. The specific transition provisions of the new or amended Ind AS come first. If there are no relevant transition provisions, a voluntary policy change is generally applied retrospectively, subject to the impracticability rules.
Suppose a company changes the cost formula for ordinarily interchangeable inventory from FIFO to weighted average. That is not simply a new forecast of selling prices or obsolescence. It changes the accounting basis used to assign inventory cost and therefore needs policy-change analysis.
If it is genuinely difficult to distinguish a policy change from an estimate change, Ind AS 8 says to treat it as an estimate change. That practical rule should not be used to avoid retrospective accounting where the measurement basis clearly changed.
Estimate change: prospective treatment
A genuine estimate change does not rewrite the past. Its effect is recognised prospectively:
- in the current period if only that period is affected; or
- in the current and future periods if both are affected.
If the change affects an asset, liability or equity item, the related carrying amount is adjusted in the period of change. The company should disclose the nature and amount of an estimate change affecting the current period or expected to affect future periods. If the future effect cannot be estimated because doing so is impracticable, that fact is disclosed.
Worked example: useful life revised halfway through the year
Assume a machine has a carrying amount of ₹9,00,000 on 1 April, no residual value and a remaining useful life of three years. Straight-line depreciation under the old estimate is therefore ₹3,00,000 a year.
On 1 October, new maintenance and usage evidence shows that the machine is likely to remain useful for five years from that date. Assume the original three-year estimate was reasonable when made and the new evidence did not exist earlier.
| Step | Calculation | Amount |
|---|---|---|
| Depreciation for 1 April to 30 September | ₹9,00,000 ÷ 3 years × 6/12 | ₹1,50,000 |
| Carrying amount on 1 October | ₹9,00,000 − ₹1,50,000 | ₹7,50,000 |
| Depreciation for 1 October to 31 March | ₹7,50,000 ÷ 5 years × 6/12 | ₹75,000 |
| Total depreciation for the year | ₹1,50,000 + ₹75,000 | ₹2,25,000 |
The remaining carrying amount is depreciated using the revised five-year estimate from 1 October. Earlier periods are not restated merely because later experience improved the estimate. If the longer useful life was supported by reliable information that management ignored before the earlier financial statements were approved, the case may instead involve an error.
When the issue is a prior-period error
A prior-period error arises from failing to use, or misusing, reliable information that was available when the earlier financial statements were approved and could reasonably have been obtained and considered. Mathematical mistakes, wrong application of a policy, oversight, misinterpretation of facts and fraud can all create errors.
A current-period error found before the financial statements are approved should be corrected in those statements. A material prior-period error discovered later is corrected in the first financial statements approved after discovery by restating the comparative figures, or by adjusting the opening balances of the earliest comparative period when the error arose earlier. Retrospective restatement stops only to the extent that the period-specific or cumulative effect is impracticable to determine.
The tax effect of a retrospective correction or policy adjustment is dealt with under Ind AS 12. Materiality also matters, but intentionally leaving even an otherwise immaterial error to achieve a desired presentation is not acceptable under Ind AS 8.
A practical review file
A short decision paper is often more useful than a long technical memo. It should contain:
- the balance and financial-statement line affected;
- the previous policy, method, inputs and assumptions;
- the new information and the date it became available;
- why the matter is an estimate change, policy change or error;
- the current-period, comparative and future-period calculations;
- the required journal entries and disclosures; and
- evidence of review and approval under the company’s own control process.
For the audit side of this work, the related SA 540 guide on assumptions, data, uncertainty and management bias explains how estimates are tested. Entities following the Accounting Standards framework rather than Ind AS should not copy this treatment automatically; the separate AS 5 comparison of prior-period items, estimates and policies explains that framework.
Closing check
Ask one final question: did the company learn something new, change the accounting basis, or discover that reliable old information had been handled incorrectly? That answer determines whether the accounting begins now, reaches back to comparative periods, or corrects an error. The current ICAI 2025–26 Ind AS compendium, Volume II should be used for the full requirements and disclosures.
