Introduction to Accounting policies
Accounting policies are the conventions, principles and rules employed to ready the financial statements. Where possible, they should be determined through reference to a suitable accounting standard. (The standard on inventories, for instance, will give policies to be adopted in this area.) In the nonexistence of a suitable standard, managers must make appropriate judgements to make sure that users receive relevant and reliable information.
The common rule is that, once a specific policy has been applied and selected, it should not be changed. Though, an accounting policy, might be changed where
1 it is needed by a new financial reporting standard; or
2 it will result in more appropriate and reliable information being given to users.
If a new accounting standard needs changes to be made, the name of the standard, and any transitional arrangements, have to be disclosed. If an alteration is voluntary, the reasons why it will result in more appropriate and reliable information should be disclosed. In both cases, the nature of the alteration in policy and the amount of the adjustment on appropriate items and on earnings per share for both the current and the prior period should be disclosed.
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