ACCOUNTING POLICIES
ACCOUNTING POLICIES
Meaning
Ø Accounting Policies means specific
accounting principles and method of applying those principles in the
preparation and presentations of financial statement.
Ø The choice of specific
accounting policy in different circumstances requires judgment by management.
Ø 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
Ø Choice of accounting policy
is important decision which affects the performance of financial position of
business.
Ø Selection of inappropriate
accounting polices may lead to understatement or overstatement of performance
and financial positions.
Ø There is no universal
formula for selecting accounting policies.
Ø Three major characteristics which should be considered for
selection and application of accounting polices
· Prudence
· Substance over form
· Materiality
Ø Financial statement should be prepared on the
basis of such accounting policies
Ø 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.
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