Change in Accounting Policy: When the Accounting Basis Changes

What is a Change in Accounting Policy?

A change in accounting policy occurs when a company changes the accounting principle, basis, convention, rule, or practice it uses for a class of transactions or events.

Under IAS 8, a policy change may be required by a new or amended accounting standard, or may be made voluntarily when the new policy provides reliable and more relevant information.

Retrospective treatment is the key idea

When a policy change is applied retrospectively, the company treats the new policy as though it had been applied in prior periods, subject to transition provisions and practicability limits. Comparative amounts and opening equity can therefore change.

That is the core purpose of Retrospective Application: to preserve comparability when the accounting basis itself changes.

A policy change is not simply a current-period adjustment that investors should add to or subtract from earnings without reading the restated comparatives.

Policy change versus estimate change

A Change in Accounting Estimate is different. Estimate revisions arise from new information or new developments and are generally recognized prospectively in the period of change and, when relevant, future periods.

For example, changing the depreciation method because the expected pattern of consumption has changed can require careful classification under the applicable framework. Investors should rely on the company's accounting explanation rather than assuming every change in depreciation is automatically a policy change.

Why investors care

A policy change can make a multi-year trend look different because prior periods may be recast. An analyst comparing growth, margins, Return on Assets, or Earnings Per Share should verify whether historical figures have been restated onto the new basis.

The change can also affect covenant calculations, segment trends, or valuation inputs even when the underlying business economics have not changed at the same moment.

Investors should ask:

• what policy changed and why;
• whether the change was required or voluntary;
• which periods were restated;
• whether opening equity changed;
• whether retrospective application was limited by impracticability; and
• how much of a trend break is accounting versus economic.

A policy change is not automatically evidence of Earnings Management. The reason, timing, disclosures, and quantitative effects matter.

Grizzly Bulls' Stock Screener and Stock Comparison provide broader company context, but issuer filings remain the authority for company-specific policy changes.

Sources and further reading

• IFRS Foundation: IAS 8 Basis of Preparation of Financial Statements
• CFA Institute: Analyzing Income Statements, 2026 curriculum

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