NAS 8

Nepal Accounting Standard 8

Accounting Policies, Changes in Accounting Estimates and Errors

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CONTENTS

from paragraphs

NEPAL ACCOUNTING STANDARDS 8

ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS

OBJECTIVE 1
SCOPE 3
DEFINITIONS 5
ACCOUNTING POLICIES 7
Selection and application of accounting policies 7
Consistency of accounting policies 13
Changes in accounting policies 14
Applying changes in accounting policies 19
Retrospective application 22
Limitation on retrospective application 23
Disclosure 28
CHANGES IN ACCOUNTING ESTIMATES 32
Disclosure 39
ERRORS 41
Limitations on retrospective restatement 43
Disclosure of prior period errors 49
IMPRACTICABILITY IN RESPECT OF RETROSPECTIVE APPLICATION AND
RETROSPECTIVE RESTATEMENT 50

EFFECTIVE DATE 54

WITHDRAWAL OF OTHER PRONOUNCEMENT 55

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Nepal Accounting Standard 8 Accounting Policies, Changes in Accounting Estimates & Errors (NAS 8) is set out in
paragraphs 1-56. All the paragraphs have equal authority. NAS 8 should be read in the context of its objective, and the Basis
for Conclusions, the Preface to Nepal Financial Reporting Standards and the Conceptual Framework for Financial
Reporting.

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Nepal Accounting Standard 8

Accounting Policies, Changes in Accounting Estimates and Errors

Objective
1 The objective of this Standard is to prescribe the criteria for selecting and changing accounting
policies, together with the accounting treatment and disclosure of changes in accounting
policies, changes in accounting estimates and corrections of errors. The Standard is intended
to enhance the relevance and reliability of an entity’s financial statements and the comparability
of those financial statements over time and with the financial statements of other entities.
2 Disclosure requirements for accounting policies, except those for changes in accounting
policies, are set out in NAS 1 Presentation of Financial Statements.

Scope
3 This Standards shall be applied in selecting and applying accounting policies, and
accounting for changes in accounting policies, changes in accounting estimates and
corrections of prior period errors.
4 The tax effects of corrections of prior period errors and of retrospective adjustments made to
apply changes in accounting policies are accounted for and disclosed in accordance with NAS
12 Income Taxes.

Definitions
5 The following terms are used in this Standard with the meanings specified:
Accounting policies are the specific principles, bases, conventions, rules and practices
applied by an entity in preparing and presenting financial statements.
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 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.
Nepal Financial Reporting Standards (NFRSs) are Standards and Interpretations issued by the
Accounting Standards Board (ASB). They comprise:
a. Nepal Financial Reporting Standards;
b. Nepal Accounting Standards;
c. IFRIC Interpretations: and
d. SIC interpretations

Material Omission or misstatements of items are material if they could, individually or

collectively; influence the economic decisions that users make on the basis of the financial
statements. Materiality depends on the size and nature of the omission or misstatement
judged in the surrounding circumstances. The size or nature of the item, or a combination
of both, could be the determining factor.

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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 authorized for issues; 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.
Retrospective application is applying a new accounting policy to transactions, other events and
conditions as if that policy had always been applied.
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.
Impracticable Applying a requirement is impracticable when the entity cannot apply it after
making every reasonable effort to do so. For a particular prior period, it is impracticable to
apply a change in an accounting policy retrospectively or to make a retrospective restatement
to correct an error if:
(a) the effects of the retrospective application or retrospective restatement are not
determinable;
(b) the retrospective application or retrospective restatement requires assumptions about
what management’s intent would have been in that period; or
(c) the retrospective application or retrospective restatement requires significant estimates of
amounts and it is impossible to distinguish objectively information about those estimates
that:
(i) provides evidence of circumstances that existed on the date(s) as at which those
amounts are to be recognized measured or disclosed; and
(ii) would have been available when the financial statements for that prior period where
authorized for issue
from other information.
Prospective application of a change in accounting policy and of recognising 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 changes; and
(b) recognising the effect of the change in the accounting estimate in the current and future
periods affected by the change.
6 Assessing whether an omission or misstatement could influence economic decisions of users, and
so be material, requires consideration of the characteristics of those users. The Framework for the
Preparation and Presentation of Financial Statements states in paragraph 25 that ‘users are
assumed to have a reasonable knowledge of business and economic activities and accounting and
a willingness to study the information with reasonable diligence.’ Therefore, the assessment needs
to take into account how users with such attributes could reasonably be expected to be influenced
in making economic decisions.

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Accounting policies
Selection and application of accounting policies
7 When a NFRS specifically applies to a transaction, other event or condition, the accounting
policy or policies applied to that item shall be determined by applying the NFRS.
8. NFRSs set out accounting policies that the ASB has concluded result in financial statements
containing relevant and reliable information about the transactions, other events and conditions to
which they apply. Those policies need not be applied when the effect of applying them is
immaterial. However, it is inappropriate to make, or leave uncorrected, immaterial departures from
NFRSs to achieve a particular presentation of an entity’s financial position, financial performance
or cash flows.
9 NFRSs are accompanied by guidance to assist entities in applying their requirements. All such
guidance states whether it is an integral part of the NFRSs. Guidance that is an integral part of the
NFRSs is mandatory. Guidance that is not integral part of the NFRS does not contain requirements
for financial statements.
10 In the absence of a NFRS that specifically applies to a transaction, other event or condition,
management shall use its judgment 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;
(i) represent faithfully the financial position, financial performance and cash flows of
the entity;
(ii) reflect the economic substance of transactions, other events and conditions, and
not merely the legal form;
(iii) are neutral, i.e. free from bias;
(iv) are prudent; and
(v) are complete in all material respect.
11 In making the judgement described in paragraph 10, management shall refer to, and
consider the applicability of, the following sources in descending order:
(a) the requirements in NFRSs dealing with similar and related issues; and
(b) the definitions, recognition criteria and measurement concepts for assets, liabilities,
income and expenses in the Framework.
12 In making the judgement described in paragraph 10, management may also consider
the most recent pronouncements of other Standard–setting bodies that use a similar
conceptual framework to develop accounting Standards, other accounting literature
and accepted industry practices, to the extent that these do not conflict with the
sources in paragraph 11.

Consistency of accounting policies

13 An entity shall select and apply its accounting policies consistently for similar
transactions, other events and conditions, unless a NFRS specifically requires or permits
categorisation of items for which different policies may be appropriate. If a NFRS requires or
permits such categorisation, an appropriate accounting policy shall be selected and
applied consistently to each category.
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Changes in accounting policies

14 An entity shall change an accounting policy only if the change:
(a) is required by a NFRS ; 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.
15 Users of financial statements need to be able to compare the financial statements of an entity over
time to identify trends in its financial position, performance and cash flows. Therefore, the same
accounting policies are normally adopted in each period and from one period to the next unless a
change in accounting policy meets one of the criteria in paragraph 14.
16 The following are not changes in accounting policies:
(a) the application of an accounting policy for transactions, other events or conditions that
differ in substance from those previously occurring; and
(b) the application of new accounting policy for transactions, other events or conditions
that did not occur previously or were immaterial.
17 The initial application of a policy to revalue assets in accordance with NAS 16 Property,
Plant and Equipment or NAS 38 Intangible Assets is a change in an accounting policy to be dealt
with as a revaluation in accordance with NAS 16 or NAS 38, rather than in accordance with
this Standard.
18 Paragraphs 19–31 do not apply to the change in accounting policy described in paragraph 17.

Applying changes in accounting policies

19 Subject to paragraph 23
(a) an entity shall account for a change in accounting policy resulting from the initial
application of a NFRS in accordance with the specific transitional provisions, if any, in
that NFRS ; and
(b) when an entity changes an accounting policy upon initial application of a NFRS that
does not include specific transitional provisions applying to that change, or changes an
accounting policy voluntarily, it shall apply the change retrospectively.
20 For the purpose of this Standard, early application of a NFRS is not a voluntary change in
accounting policy.
21 In the absence of NFRS that specifically applies to a transaction, other event or condition,
management may, in accordance with paragraph 12, apply an accounting policy from the most
recent pronouncements of other Standard-setting bodies that use a similar conceptual framework to
develop accounting Standards. If, following an amendment of such a pronouncement, the entity
chooses to change an accounting policy, that change is accounted for and disclosed as a voluntary
change in accounting policy.

Retrospective application
22 Subject to paragraph 23, when a change in accounting policy is applied retrospectively in
accordance with paragraph 19(a) or (b), the entity shall adjust the opening balance of each
affected component of equity for the earliest prior period presented and the other comparative
amounts disclosed for each prior period presented as if the new accounting policy had always
been applied.

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Limitation on retrospective application

23 When retrospective application is required by paragraph 19 (a) or (b), a change in accounting
policy shall be applied retrospectively except to the extent that it is impracticable to determine
either the period – specific effects or the cumulative effect of the change.
24 When it is impracticable to determine the period–specific effects of changing an accounting
policy on comparative information for one or more prior periods presented, the entity shall apply
the new accounting policy to the carrying amounts of assets and liabilities as at the beginning of
the earliest period for which retrospective application is practicable, which may be the current
period, and shall make a corresponding adjustment to the opening balance of each affected
component of equity for that period.
25 When it is impracticable to determine the cumulative effect, at the beginning of the current
period, of applying a new accounting policy to all prior periods, the entity shall adjust the
comparative information to apply the new accounting policy prospectively from the earliest date
practicable.
26 When an entity applies a new accounting policy retrospectively, it applies the new accounting policy
to comparative information for prior periods as far back as is practicable. Retrospective application
to a prior period is not practicable unless it is practicable to determine the cumulative effect on the
amounts in both the opening and closing statement of financial position for that period. The amount
of the resulting adjustment relating to periods before those presented in the financial statements is
made to the opening balance of each affected component of equity of the earliest prior period
presented. Usually the adjustment is made to retained earnings. However, the adjustment may be
made to another component of equity (for example, to comply with a NFRS). Any other information
about prior periods, such as historical summaries of financial data, is also adjusted as far back as is
practicable.
27 When it is impracticable for an entity to apply a new accounting policy retrospectively, because it
cannot determine the cumulative effect of applying the policy to all prior periods, the entity, in
accordance with paragraph 25, applies the new policy prospectively from the start of the earliest
period practicable. It therefore disregards the portion of the cumulative adjustment to assets,
liabilities and equity arising before that date. Changing an accounting policy is permitted even if it is
impracticable to apply the policy prospectively for any prior period. Paragraph 50-53 provides
guidance on when it is impracticable to apply a new accounting policy to one or more prior periods.

Disclosure
28 When initial application of a NFRS has an effect on the current period or any prior period, would
have such an effect except that it is impracticable to determine the amount of the adjustment, or
might have an effect on future periods, an entity shall disclose:
(a) the title of the NFRS
(b) when applicable, that the change in accounting policy is made in accordance with its
transitional provisions;
(c) the nature of the change in accounting policy;
(d) when applicable, a description of the transitional provisions;
(e) when applicable, the transitional provisions that might have an effect on future periods;
(f) for the current period and each prior period presented, to the extent practicable, the
amount of the adjustment:
(i) for each financial statement line item affected; and
(ii) if NAS 33 Earnings Per Share applies to the entity, for basic and diluted earning per
share;

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(g) the amount of the adjustment relating to periods before those presented, to the extent
practicable; and
(h) if retrospective application required by paragraph 19(a) or (b) is impracticable for
particular prior period, or for periods before those presented, the circumstances that
led to the existence of that condition and a description of how and from when the
change in accounting policy has been applied.

Financial statements of subsequent periods need not repeat these disclosures.

29 When a voluntary change in accounting policy has an effect on the current period or any
prior period, would have an effect on that period except that it is impracticable to determine
the amount of the adjustment, or might have an effect on future periods, an entity shall
disclose;
(a) the nature of the change in accounting policy;
(b) the reasons why applying the new accounting policy provides reliable and more
relevant information;
(c) for the current period and each prior period presented, to the extent practicable, the
amount of the adjustment;
(i) for each financial statement line item affected; and
(ii) if NAS 33 applies to the entity, for basic and diluted earning per share;
(d) the amount of the adjustment relating to periods before those presented, to the extent
practicable; and
(e) if retrospective application is impracticable for a particular prior period, or for
periods before those presented, the circumstances that led to the existence of that
condition and a description of how and from when the change in accounting policy has
been applied.

Financial statements of subsequent periods need not repeat these disclosures.

30 When an entity has not applied a new NFRS that has been issued but is not yet effective, the
entity shall disclose:
(a) this fact; and
(b) known or reasonably estimable information relevant to assessing the possible impact that
application of the new NFRS will have on the entity’s financial statements in the period
of initial application.

31 In complying with paragraph 30, an entity considers disclosing:

(a) the title of the new NFRS;
(b) the nature of the impending change or changes in accounting policy;
(c) the date by which application of the NFRS is required
(d) the date as at which it plans to apply the NFRS initially; and

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(e) either:
(i) a discussion of the impact that initial application of the NFRS is expected to have
on the entity’s financial statements; or
(ii) if that impact is not known or reasonably estimable, a statement to that effect.

Changes in accounting estimates

32 As a result of the uncertainties inherent in business activities, many items in financial statement
cannot be measured with precision but can only be estimated. The estimation involves judgments
based on the latest available reliable information. For example, estimates may be required of
(a) bad debts;
(b) inventory obsolescence;
(c) the fair value of financial assets or financial liabilities;
(d) the useful lives of, or expected pattern of consumption of future economic benefits
embodied in depreciable assets: and
(e) warranty obligations.
33 The use of reasonable estimates is an essential part of the preparation of financial statements and
does not undermine their reliability.
34 An estimate may need revision if changes occur in the circumstances on which the estimate was
based or as a result of new information or more experience. By its nature, the revision of an
estimate does not relate to prior periods and is not the correction of an error.
35 A change in the measurement basis applied is a change in an accounting policy, and is not a
change in an accounting estimate. When it is difficult to distinguish a change in an accounting policy
from a change in an accounting estimate, the change is treated as a change in an accounting
estimate.
36 The effect of a change in an accounting estimate, other than a change to which
paragraph 37 applies, 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.
37 To the extent that a change in an accounting estimate gives rise to changes in assets
and liabilities, or related 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.
38 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. 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. For example, a change in the estimate of the
amount of bad debts affects only the current period’s profit or loss and therefore is recognized in the
current period. However, a change in the estimated useful life of, or the expected pattern of
consumption of the future economic benefits embodied in, a depreciable asset affects depreciation
expense for the current period and for each future period during the the asset’s remaining useful
life. In both cases, effect of the change relating to the current period is recognised as income or
expense in the current period. The effect, if any, on future periods is recognised as income or
expense in those future periods.

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Disclosure
39 An entity shall disclose the nature and amount of a change in an accounting estimate that
has an effect in the current period or is expected to have an effect in future periods, except for
the disclosure of the effect on future periods when it is impracticable to estimate that effect.
40 If the amount of the effect in future periods is not disclosed because estimating it is
impracticable, an entity shall disclose that fact.

Errors
41 Errors can arise in respect of the recognition, measurement, presentation or disclosure of elements
of financial statements. Financial statements do not comply with NFRS 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. Potential current period errors
discovered in that period are corrected before the financial statements are authorised for issue.
However, 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 (see paragraphs 42–47).
42 Subject to paragraph 43, and entity shall correct material prior period errors retrospectively
in the first set of financial statements authorised for issue after their discovery by:
(a) restating the comparative amounts for the prior period(s) presented in which the error
occurred; or
(b) if the error occurred before the earliest prior period presented, restating the opening
balances of assets, liabilities and equity for the earliest prior period presented.

Limitations on retrospective restatement

43 A prior period error shall be corrected by retrospective restatement except to the extent that it is
impracticable to determine either the period–specific effects or the cumulative effect of the error.
44 When it is impracticable to determine the period–specific effects of an error on
comparative information for one or more prior periods presented, the entity shall
restate the opening balances of assets, liabilities an equity for the earliest period for
which retrospective restatement is practicable (which may be the current period).
45 When it is impracticable to determine the cumulative effect, at the beginning of the
current period, of an error on all prior periods, the entity shall restate the comparative
information to correct the error prospectively from the earliest date practicable.
46 The correction of a prior period error is excluded from profit or loss for the period in which
the error is discovered. Any information presented about prior periods, including any
historical summaries of financial data, is restated as far back as is practicable.
47 When it is impracticable to determine the amount of an error (e.g. a mistake in applying an
accounting policy) for all prior periods, the entity, in accordance with paragraph 45, restates
the comparative information prospectively from the earliest date practicable. It therefore
disregards the portion of the cumulative restatement of assets, liabilities and equity arising
before that date. Paragraphs 50-53 provide guidance on when it is impracticable to correct
an error for one or more prior periods.
48 Corrections of errors are distinguished from changes in accounting estimates. Accounting
estimates by their nature are approximations that may need revision as additional

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information becomes known. For example, the gain or loss recognized on the outcome of a
contingency is not the correction of an error.

Disclosure of prior period errors

49 In applying paragraph 42, an entity shall disclose the following:
(a) the nature of the prior period error;
(b) for each prior period presented, to the extent practicable, the amount of the correction:
(i) for each financial statement line item affected;
(ii) if NAS 33 applies to the entity, for basic and diluted earnings per share;
(c) the amount of the correction at the beginning of the earliest prior period presented; and
(d) if retrospective restatement is impracticable for a particular prior period, the
circumstances that led to the existence of that condition and a description of how and
from when the error has been corrected.

Financial statements of subsequent periods need not repeat these disclosures.

Impracticability in respect of retrospective application and retrospective restatement

50 In some circumstances it is impracticable to adjust comparative information for one or more
prior periods to achieve comparability with the current period. For example, data may not
have been collected in the prior period(s) in a way that allows either retrospective
application of a new accounting policy (including, for the purpose of paragraphs 51-53, its
prospective application to prior periods) or retrospective restatement to correct a prior period
error, and it may be impracticable to recreate the information.
51 It is frequently necessary to make estimates in applying an accounting policy to elements of
financial statements recognized or disclosed in respect of transactions, other events or
conditions. Estimation is inherently subjective, and estimates may be developed after the
reporting period. Developing estimates is potentially more difficult when retrospectively
applying an accounting policy or making a retrospective restatement to correct a prior period
error, because of the longer period of time that might have passed since the affected
transaction, other event or condition occurred. However, the objective of estimates related
to prior periods remains the same as for estimates made in the current period, namely, for
the estimate to reflect the circumstances that existed when the transaction, other event or
condition occurred.
52 Therefore, retrospectively applying a new accounting policy or correcting a prior period error
requires distinguishing information that
(a) provides evidence of circumstances that existed on the date(s) as at which the transaction, other
event or condition occurred, and
(b) would have been available when the financial statements for that prior period were authorised for
issue
from other information. For some types of estimates (eg a fair value measurement that uses
significant unobservable inputs), it is impracticable to distinguish these types of information.
When retrospective application or retrospective restatement would require making a
significant estimate for which it is impossible to distinguish these two types of information, it
is impracticable to apply the new accounting policy or correct the prior period error
retrospectively.

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53 Hindsight shall not be used when applying a new accounting policy to, or correcting amounts
for, a prior period, either in making assumptions about what management’s intentions would
have been in a prior period or estimating the amounts recognised, measured or disclosed in
a prior period. For example, when an entity corrects a prior period error in calculating its
liability for employees’ accumulated sick leave in accordance with NAS 19 Employee
Benefits, it disregards information about an unusually severe influenza season during the
next period that became available after the financial statements for the prior period were
authorized for issue. The fact that significant estimates are frequently required when
amending comparative information presented for prior periods does not prevent reliable
adjustment or correction of the comparative information.

Effective date
54 This Nepal Accounting Standard becomes operative for financial statements covering
periods beginning on or after XXXXXXX.

54A [Deleted]

54B [Deleted]

54C [Deleted]

Withdrawal of other pronouncements

55 This standard supersedes earlier NAS 02 Accounting Policies, Changes in Accounting Estimates
and Errors.

56 [Deleted]

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