Change in Accounting Policies Tax & Accounting Treatment
- Blog|News|Account & Audit|
- 2 Min Read
- By Taxmann
- |
- Last Updated on 19 January, 2026
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[2025] 171 taxmann.com 681 (Article)
Introduction
Accounting Policies are the specific principles, bases, conventions and rules applied by an Enterprise in preparing and presenting its Financial Statements. A change in Accounting Policy can significantly impact reported profits, tax liabilities, and financial comparability across periods.
Therefore, Accounting Standards (AS), Indian Accounting Standards (Ind AS) and the Income Tax Act, 1961 prescribe strict guidelines for when such changes are permitted and how they should be treated. However, a preparers and readers of financial statements are often found in dilemma regarding “Accounting Principles” and “Accounting Estimates”. Lets us briefly understand the difference between the accounting principle and accounting estimates.
1. Accounting Policies vs Accounting Estimates
| Aspect | Accounting Policies | Accounting Estimates |
| Meaning | Fundamental accounting principles | Approximations used in accounting due to uncertainty in measurement |
| Change | Change in accounting principles or methods | Revision of an estimate due to new information |
|
Example
|
• Change in revenue recognition method
• Inventory valuation
|
• Change in useful life
• Provision amounts
|
|
AS/Ind AS
|
• AS usually applied prospectively with disclosure
• Ind AS- applied retrospectively
|
Applied prospectively under both AS and Ind AS
|
| Disclosure | Detailed disclosure in notes to accounts | Disclosure only if material |
2. Accounting Treatment of Change in Accounting Policies
2.1. When is a Change Permitted?
(b) Required by an Accounting Standard
(c) Results in more appropriate presentation of Financial Statements
The accounting treatment under Accounting Standards (AS) and Indian Accounting Standards (Ind AS) differs primarily due to their underlying frameworks and objectives. While AS are largely rule-based and focus on historical cost and prudence, Ind AS are principle-based and aligned with IFRS, emphasising fair value, substance over form, and enhanced disclosures. These differences significantly impact recognition, measurement, presentation, and disclosure of financial information, making it essential for professionals to understand their implications on financial reporting and decision-making. The table given below highlights the major differences between accounting treatment as per AS and Ind AS
| Aspect | AS | Ind – AS |
| Applicable Standards | AS 1 | Ind AS 8 |
| Method | Generally applied prospectively | Must be applied retrospectively, unless it is clearly impracticable |
| Restatement of Comparative Periods | Not mandatory; done only when practicable or necessary | Mandatory, unless it is clearly impracticable |
| Adjustment to Opening Balances | No, as retrospective application is not mandatory | Requires adjustment to opening equity (retained earnings) |
|
Disclosure Requirements
|
• Nature of change
• Reasons
• Financial impact on current and future periods
|
• Nature and reason for change
• Quantitative impact on each period presented
• Impact on opening equity
• Explanation if retrospective restatement is impracticable
|
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