Accounting Policies
Accounting Policies
Accounting Policies
Based
on
This list should not be taken as exhaustive but is only illustrative. As the course will progress, students will
see the intricacies of the various accounting policies.
Suppose an enterprise holds some investments in the form of shares of a company at the end of an accounting
period. For valuation of shares, the enterprise may adopt FIFO, average method etc. The method selected
by that enterprise for valuation is called an accounting policy. Different enterprises may adopt different
accounting policies. Likewise, different methods of providing depreciation on fixed assets, i.e. Straight line,
written down, etc. are available to the business enterprises which will lead to different depreciation amounts.
1. Omega Enterprises revised its accounting policy relating to valuation of inventories to include applicable
production overheads.
2. Alpha Enterprises changed the method of depreciation from straight-line method to written-down
value method which constitutes change in accounting policy.
SUMMARY
w Accounting Policies refer to specific accounting principles and methods of applying these principles
adopted by the enterprise in the preparation and presentation of financial statements. Policies are
based on various accounting concepts, principles and conventions.
w Three major characteristics which should be considered for the purpose of selection and application of
accounting policies. viz., Prudence, Substance over form, and Materiality.
w A change in accounting policies should be made in the following conditions:
(a) It is required by some statute or for compliance with an Accounting Standard.
(b) Change would result in more appropriate presentation of financial statement.