In one sentenceRevising a previous estimate, such as a useful life or a provision rate, because of new information; its effect is applied to the current and future periods only, without restating the past.
Simply put
Estimates are a normal part of accounting: how long will this asset last? How much of these debts will be collected? If the information changes, revise the estimate, but do not reopen previous years (international standard IAS 8).
This is not an error. An error is using information that was available and ignored, while a new estimate is based on information that did not exist.
Worked example
A company has an asset costing 100,000 SAR depreciated over 10 years with no residual value. After 4 years it became clear that its remaining life is 3 years, not 6.
Previous annual depreciation: 100,000 ÷ 1010,000 SAR
Carrying amount after 4 years: 100,000 − 40,00060,000 SAR
New annual depreciation: 60,000 ÷ 320,000 SAR
Depreciation expense in each of the next three years20,000 SAR
Don't confuse it with
Prior period errorsAn error is corrected retrospectively in the prior figures, while a change in estimate is applied to the future only.