Financial Reporting Standard 108 Accounting Policies, Changes in Accounting Estimates and Errors (FRS 108) replaces FRS 108₂₀₀₄ Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies and should be applied for annual periods beginning on or after 1 January 2006. Earlier application is encouraged. The Standard also replaces the following Interpretations:

- SIC-2 Consistency-Capitalisation of Borrowing Costs
- SIC-18 Consistency-Alternative Methods

[Reason: MASB has not adopted SIC-2 and SIC-18.]

The International Accounting Standards Board developed the revised IAS 8 as part of its project on Improvements to International Accounting Standards. The project was undertaken in the light of queries and criticisms raised in relation to the Standards by securities regulators, professional accountants and other interested parties. The objectives of the project were to reduce or eliminate alternatives, redundancies and conflicts within the Standards, to deal with some convergence issues and to make other improvements.

For IAS 8, the IASB's main objectives were:

The IASB did not reconsider the other requirements of IAS 8.

The main changes from FRS 108₂₀₀₄ are described below.

The requirements for the selection and application of accounting policies in FRS 101₂₀₀₄ Presentation of Financial Statements have been transferred to the Standard. The Standard updates the previous hierarchy of guidance to which management refers and whose applicability it considers when selecting accounting policies in the absence of Standards and Interpretations that specifically apply.

The Standard defines material omissions or misstatements. It stipulates that:

The Standard requires retrospective application of voluntary changes in accounting policies and retrospective restatement to correct prior period errors. It removes the allowed alternative in FRS 108₂₀₀₄:

As a result of the removal of the allowed alternative, comparative information for prior periods is presented as if new accounting policies had always been applied and prior period errors had never occurred.

The Standard retains the 'impracticability' criterion for exemption from changing comparative information when changes in accounting policies are applied retrospectively and prior period errors are corrected. The Standard now includes a definition of 'impracticable' and guidance on its interpretation.

the entity changes the comparative information as if the new accounting policy had been applied, or the error had been corrected, prospectively from the earliest date practicable.

The Standard eliminates the concept of a fundamental error and thus the distinction between fundamental errors and other material errors. The Standard defines prior period errors.

The Standard now requires, rather than encourages, disclosure of an impending change in accounting policy when an entity has yet to implement a new Standard or Interpretation that has been issued but not yet come into effect. In addition, it requires disclosure of known or reasonably estimable information relevant to assessing the possible impact that application of the new Standard or Interpretation will have on the entity's financial statements in the period of initial application.

The Standard requires more detailed disclosure of the amounts of adjustments resulting from changing accounting policies or correcting prior period errors. It requires those disclosures to be made for each financial statement line item affected and, if FRS 133 Earnings per Share applies to the entity, for basic and diluted earnings per share.

The presentation requirements for profit or loss for the period have been transferred to FRS 101.

The Standard incorporates the consensus in IASB SIC-18 Consistency - Alternative Methods, namely that:

The consensus in IASB SIC-18 incorporated the consensus in IASB SIC-2 Consistency - Capitalisation of Borrowing Costs, and requires that when an entity has chosen a policy of capitalising borrowing costs, it should apply this policy to all qualifying assets.

The Standard includes a definition of a change in accounting estimate.

The Standard includes exceptions from including the effects of changes in accounting estimates prospectively in profit or loss. It states that to the extent that a change in an accounting estimate gives rise to changes in assets or liabilities, or relates to an item of equity, it is recognised by adjusting the carrying amount of the related asset, liability or equity item in the period of the change.