The Standard IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors tells us:
Accounting policies are anything from rules, guidelines, conventions, principles and similar norms used by entities for the preparation of the financial statements. IAS 8 specifically points out that the measurement basis is an accounting policy rather than accounting estimate.
When there is NO specific standard dealing with a transaction or item, then management needs to use judgement and develop its own policy. If there is a specific standard for a transaction, then it must be simply applied.
An accounting policy can be changed only at 2 circumstances:
Changes in accounting policies can be applied retrospectively. “Retrospectively” means going back to the previous reporting periods and restating every single component of equity as if the new policy had always been in place.
When you change the accounting estimate, you change either some amount of an asset or a liability, or pattern of its consumption in both current and future reporting periods.
Typical examples of changes in accounting estimates are:
A change in accounting estimates is applied prospectively, either:
“Prospectively” means that comparatives and equity are not restated. Financial statements in the previous reporting periods are not altered (simply adjust calculations in the current and future reporting periods).
Prior-period errors are some omissions from or misstatements in the financial statements as a result of ignoring or misusing the information that was available or could be reasonably obtained when preparing these financial statements.