Accounting policies, changes in estimates and prior period error

In this lesson

1. 0:00 Accounting policies, estimates and errors overview
2. 0:39 What are accounting policies and why they matter
3. 2:18 When and how to change accounting policies
4. 3:25 Examples of policy changes in practice
5. 5:23 What counts and doesn't count as policy changes
6. 6:12 Accounting treatment for policy changes
7. 7:09 Understanding accounting estimates
8. 8:39 How to account for changes in estimates
9. 10:07 Prior period errors and corrections
10. 14:27 Distinguishing policies, estimates and errors

About this lesson

This session covers the three key areas tested in FR and SBR: why accounting policies matter for comparability and reliability, when and how to adjust them retrospectively, how changes in estimates are treated prospectively from the point of discovery onwards, and how to correct material prior period errors by restating comparative figures. Understanding these distinctions is essential for accurate financial reporting and exam success, as the treatment differs significantly depending on what you're dealing with. The session walks you through the core concepts with worked examples. Accounting policies are the principles and practices you use to prepare financial statements—they should remain consistent year on year, but when they do change (due to new IFRS standards or to provide more useful information), you adjust retrospectively, going back to restate opening balances and comparatives as if the new policy had always applied. Changes in accounting estimates, by contrast, are adjustments to amounts like useful life, depreciation, or allowances for doubtful debts. These are treated prospectively: you adjust the current and future periods only, without restating prior years. Prior period errors—omissions, miscalculations, or misapplications of standards that should have been caught—are also corrected retrospectively, restating comparatives and opening balances. The final part of the session applies these distinctions to a practical question, helping you recognise whether a change is a policy adjustment (retrospective), an estimate revision (prospective), or an error correction (retrospective). This clarity is vital for both understanding the conceptual framework and performing well on objective test questions and case study tasks involving financial statement preparation and restatement.

Duration: 17m