Accounting policies

Accounting policies
See also
Accounting Convention Accounting Principles Materiality principle Accrual method Conservatism principle Consistency principle Accounting concepts LIFO Reserve Abbreviated accounts Decision making models

Accounting policies are a set of internal rules and procedures that were applied by the company in order to prepare financial statements. There is important difference between accounting policies and accounting rules, as the latters are general and the former are a way of implementing them in certain company. As it is said by Julija Bojarenko, accounting policy is a very important document, which was made to monitor a company's accountancy. Despite the fact that financial statement is commanded by government, enterprises are still able to choose indication of items, what approach they gonna made for assessment and also criteria of recognition of the financial statement. And thanks to this policy every person which reads company's financial statement, have sure that "businnes information is truthful, complete and comparable" (Julija Bojarenko 2017, p. 9,10). It also allows management to choose which accountancy rules they are gonna follow from huge selection which are all stated in the Balance Sheet Law. Thanks to that it is a management that is choosing a solution, which will be an element of the accounting policy and will have response on the financial situation shown in the financial statement (Konrad Stępień 2014, p. 398). In other words, accounting policy is a huge part of the accounting system that prepars information about the business activities in a company and also prepers every required documents (Vasyl Mukoviz 2016, p. 117).

Accounting policy is often link with accounting management and gaining information for recording and then presenting them to external users. The truth is that accounting policy is not just an instrument used by accounting management and it is a full process that should begin soon after the start of the company and it should help with calculation and demonstration of things like assets, obligations, income and expenses of the company (Vasyl Maukoviz 2016, p. 117). It also have an enormous impact for business figures and pricing policy in the company (Julija Bojarenko 2017, p. 11).

The accounting policies can be more conservative or aggressive depending on the market they operate and strategy they assume. The result of certain attitude can be larger or smaller profit/loss in books. Accounting policies are also able to influence the value of production, profit, costs, taxes and financial ratios of a business (Valientina Gawrylenko 2016, p. 183).

Elements of accounting policy and affect on company

There are two elements of accounting policy:

• mandatory, which had to be found in the notes of financial statements,
• optional, which don't need to be found in the notes of financial statements (Vasyl Maukoviz 2016, p. 118).

Accounting policy in the company mostly affects:

• financial figures of the company's operation,
• financial status of the company,
• decisions made by the users of financial statements (Julija Bojarenko 2017, p. 17).

Examples of typical accounting inventory

• Reporting inventory:
  • First-in, first-out (FIFO),
  • Last-in, first-out (LIFO),
• Revenue recognition,
• Research And development expenses.

Where to find

Accounting policies are included in accounting manual and they should be in accordance with the generally accepted accounting principles known as GAAP (General Accounting Rules) or other national or international standards, e.g. IAS (Internacional Accounting Standards).

References

• Bojarenko J. (2017). Variability of accounting policies – Advantages and disadvantages, Copernican jurnal of finance & accounting,(vol. 6, no. 3)
• Gawrylenko V. (2016). Accounting policies and its importance in enterprise manegment – case of Ukraine, Humanitas University's Research Papers Management, (vol.2)
• Mukoviz V. (2016). The impact of accounting policy on formation of the valuation of assets, obligations and company's capital,Research Papers of Wrocław University of Economics, (vol. 434)
• Scott, W. R. (2015). Financial accounting theory (Vol. 2, No. 0). Prentice Hall.
• Stępień K. (2014). Accounting policy in creating the financial Image of an enterprise through financial reporting ,Finanse, Rynki Finansowe, Ubezpieczenia, (vol. 69)

Author: Olga Marmuszewska