A Comparative Study of Ind AS 8 and AS 5

A Comparative Analysis of Ind AS 8 - Accounting Policies, Changes in Accounting Estimates and Errors and AS 5 - Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies

1. Scope Differences

• Ind AS 8: Extends its scope to cover criteria for the selection of accounting policies, a domain typically handled by AS 1 (Disclosure of Accounting Policies).
• AS 5: Primarily focuses on net profit or loss, prior period items, and changes in accounting policies but doesn't explicitly delve into the criteria for selecting accounting policies.

2.Treatment of Extraordinary Items

• Ind AS 8: Explicitly prohibits the presentation of items of income or expense as extraordinary. No separate presentation for extraordinary items is allowed.
• AS 5: Requires separate presentation of extraordinary items in the statement of profit and loss. Defines extraordinary items as those distinct from ordinary activities, not expected to recur frequently.

3. Changes in Accounting Policies

• Ind AS 8: Advocates retrospective accounting for changes in policies, requiring restatement of comparative information and presentation of a third balance sheet for material effects.
• AS 5: Doesn't explicitly specify whether changes in policies should be retrospective or prospective. Requires material impacts to be shown in the financial statements of the period of change.

4. Prior Period Items vs. Errors

• Ind AS 8: Uses the term 'errors' instead of 'prior period items'. Requires retrospective correction of material prior period errors, akin to changes in policies.
• AS 5: Defines 'prior period items' as incomes or expenses arising in the current period due to errors or omissions in prior periods. Correction involves adjustments in the determination of net profit or loss.

5. Correction of Errors

• Ind AS 8: Demands retrospective correction for material prior period errors, restating comparative information as if the errors had never occurred.
• AS 5: Permits an alternative approach, including adjustments in the statement of profit and loss after determining current net profit or loss.

6. Disclosure Requirements

• Ind AS 8: Imposes detailed disclosure requirements, particularly in cases of voluntary changes in accounting policies. Entities must elucidate why the new policy provides more reliable and relevant information.
• AS 5: Features less detailed disclosure requirements compared to Ind AS 8.