ACCA Strategic Business Reporting (SBR) Practice Exam

What type of accounting change is applied retrospectively?

1. Changes in accounting estimates

2. Changes in accounting policies required by IFRS

3. Changes that do not affect financial statements

4. Changes in management strategy

The correct answer is: Changes in accounting policies required by IFRS

The correct response pertains to changes in accounting policies that are mandated by International Financial Reporting Standards (IFRS). When a company adopts a new accounting policy or changes an existing one, IFRS requires that these changes be applied retrospectively unless it is impractical to do so. This means that the financial statements for prior periods must be restated as if the new accounting policy had always been in effect. This approach ensures consistency across reporting periods, allowing for better comparability and transparency for users of the financial statements. Changes in accounting estimates, while they can significantly impact financial statements, are typically accounted for prospectively, meaning they only affect the current and future periods, without adjusting prior financial statements. Similarly, changes that do not affect financial statements typically do not require any restatement, as they do not have a direct financial reporting impact. Finally, changes in management strategy do not fall under the purview of accounting policy changes and, therefore, do not require retrospective application. Collectively, these distinctions highlight why the adoption or modification of accounting policies according to IFRS is handled retrospectively.