Significant accounting policies, also known as accounting principles or accounting methods, are the specific guidelines and procedures a company uses to prepare and present its financial statements. These policies are fundamental to financial reporting and provide consistency and comparability in financial information across different companies and periods. Significant accounting policies are disclosed in a company's financial statements to ensure transparency and to help users understand how the financial information has been prepared.

Here are some examples of significant accounting policies:

1.Basis of Accounting :

This policy states whether the financial statements have been prepared on an accrual basis or a cash basis. Most companies use the accrual basis, where transactions are recorded when they occur, not when the cash changes hands.

2.Reporting Currency :

Companies operating internationally may choose to present their financial statements in a currency other than their local currency. The policy will specify the reporting currency and any translation methods used.

3.Measurement of Fixed Assets :

This policy explains how the company values and depreciates its fixed assets. It may include details on depreciation methods, useful lives, and residual values.

4.Revenue Recognition :

This policy outlines the criteria for recognizing revenue. It may address issues like the point in time or over a period when revenue is recognized, and how to account for sales returns and allowances.

5.Inventory Valuation :

This policy discusses the method used to value inventory, such as FIFO (First-In, First-Out), LIFO (Last-In, First-Out), or weighted average.

6.Depreciation and Amortization:

This policy specifies the depreciation and amortization methods used, including the estimated useful lives of assets.

7. Income Taxes :

It describes how the company accounts for income taxes, including deferred tax assets and liabilities.

8. Consolidation Policy :

If the company has subsidiaries or associates, the policy outlines the criteria used to consolidate their financial statements.

9.Leasing :

With the introduction of IFRS 16 and ASC 842, companies must disclose their leasing policies, including the treatment of lease assets and liabilities.

10.Employee Benefits :

This policy deals with the accounting for employee compensation, including defined benefit pension plans, stock-based compensation, and post-employment benefits.

11. Financial Instruments :

Companies must disclose how they measure and account for financial instruments like loans, bonds, and derivatives.

12.Segment Reporting :

If the company operates in different business segments, the policy explains how it defines and reports on these segments.

13.Foreign Exchange Transactions :

If the company conducts business in multiple currencies, the policy outlines how foreign exchange gains and losses are recognized.

These are just a few examples, and the specific policies will vary depending on the industry, regulatory requirements, and the company's specific circumstances. It's crucial for financial statement users to review a company's significant accounting policies to understand how financial information is presented and to make meaningful comparisons with other companies.

Ledgerfusion Provides standardise points for significant accounting policies to help auditor while finalising the financial statements. It is expected from user to update/alter points as per actual findings of audit before finalising the significant accounting policies.

Reference: General Instructions for Significant notes'

Get your Free Trial for LedgerFusion Today