ACCOUNTING POLICIES

Meaning

➢ Accounting Policies means specific accounting principles and method of applying those principles in the preparation and presentations of financial statement.

➢ The choice of specific accounting policy in different circumstances requires judgment by management.

➢ ICAI trying to reduce number of accounting policies through Guidance Notes and Accounting standard in combined efforts with government and other regulatory agencies. ICAI already achieved some progress in this respect.

Areas within different accounting polices are frequently encountered are as follows:

• Method of deprecation, depletion and Amortization

• Valuation of Inventories

• Treatment of goodwill

• Valuation of Investment

• Valuation of fixed assets etc

      Selection of Accounting Policies

      ➢ Choice of accounting policy is important decision which affects the performance of financial position of business.

        ➢ Selection of inappropriate accounting polices may lead to understatement or overstatement of performance and financial positions.

       ➢ There is no universal formula for selecting accounting policies.

       ➢ Three major characteristics which should be considered for selection and application of accounting polices

                 • Prudence 

                • Substance over form

                • Materiality

      ➢ Financial statement should be prepared on the basis of such accounting policies

      ➢ Accounting policies adopted in the preparation of financial statement should be disclosed at one place.

      Change in Accounting policies:- Change in Accounting policies should be made in following conditions

           a) When it is required by law.

           b) Change result more appropriate presentation of financial statement.

           c) Changes require to comply with accounting standard. So it is necessary to reflect change in financial statement.