AccountingPolicies

Accounting policies are the principles, conventions, rules, and practices adopted by an entity to prepare and present its financial statements. They define how transactions and events are recognized, measured, and disclosed and thus influence comparability over time and across entities. Policies are selected from the set of acceptable methods permitted by applicable accounting standards and regulatory regimes, and they should reflect the substance of the underlying transactions as well as the entity’s business model.

Common examples include the choice of measurement basis (cost, fair value, or net realizable value), depreciation and amortization methods, inventory valuation (for example, FIFO or weighted average), revenue recognition, impairment testing, and the treatment of leases. Other policies cover consolidation or equity method investments, foreign currency translation, and the recognition of provisions and contingencies.

Significant accounting policies are disclosed in the notes to the financial statements to enable users to understand how amounts were determined. When policies change, the change must be disclosed, and, where applicable, the effect on the financial statements should be explained. Under many jurisdictions, changes in accounting policies are applied retrospectively with restatement of prior periods unless impracticable, and the rationale and effect are disclosed.

Accounting policies are integral to the quality of financial reporting and should be applied consistently, while allowing for new standards and evolving estimates where appropriate.