Disclosures of accounting Policies.

Auditing and Assurance Revision Questions and Answers

Nature of Accounting Policies: Accounting Policies refer to the specific accounting principles and methods of applying those principles adopted by the enterprise in the preparation and presentation of financial statements.

Management should select and apply an enterprise‟s accounting policies so that the financial statements comply with all the requirements of each applicable Accounting Standards. Where there is no specific requirement management should develop policies to ensure that the financial statement provide information that is:

i. a relevant to the decision- making needs of users; and
ii. reliable in that they:
 represent faithfully the results and financial position of the enterprise;
 reflect the economic substance of events and transactions and not merely the legal forms;
 are neutral, that is free from bias;
 are prudent; and
 are complete in all material respects.

Accounting policies are the specific principles, bases, conventions, rules and practices adopted by an enterprise in preparing and presenting financial statements. They are going concern; accrual basis of accounting; consistency or presentation; materially and aggregation; offsetting not in all aspects; and comparative statement.

Any change in an accounting policy, which has a material effect, should be disclosed. Areas in which different accounting policies may be adopted on: Depreciation accounting, expenditure during construction; foreign currency transaction, valuation of inventories. Goodwill, investments, retirement benefits, expenditures during construction, contingent liabilities etc.

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