❖ Accounting policies rules that are used/Applied by accountants when preparing and
presenting financial statements.
❖ An entity has got two choices:
• selecting and applying accounting policies
• developing their own accounting on policy
1. SELECTING AND APPLYING ACCOUNTING POLICIES
• Most often when we are preparing our statements, we must apply what we call IFRS.
• sometimes IFRS gives us a choice, or its forces us to use a certain policy
• if we buy inventory, we are forced to use IAS-2 for inventory to value our inventory at
a lower of cost or net realizable value
• if we buy in item of PPE, we are given a choice to value that item of PPE either when
a cost model or a revaluation model
• If an event that is what case has got no relevance to the IFRS, then we must develop
our own
, 2. DEVELOPING OUR OWN ACCOUNTING POLICY
• We only develop our own accounting policy if we cannot find an accounting
policy in the IFRS that seeks to address the event that we have.
• If ever we are forced to create our own accounting policy, we must keep it in the
back of our minds that the financial statements that are produced must be
relevant and reliable which is part of faithful representation. And we must use
our own p[professional judgement.
• So this mean that information is relevant we must ask ourselves a question of
whether there's this information or will this information have an impact on the
economic decisions of the user.
• They must also be reliability. for us to say that the information provided is
reliable it's means that they ease faithful representation off the entity's financial
performance position as well as their cash flows.
• and ensure that the transaction represents the economic substance rather than
the legal substance.
• It must be neutral it must not include material errors
• It must be prudent which means that you must always be on the most
pessimistic side but you being on that side must then provide a misleading
information on the company's profit and all that kind of stuff.
• the information must be complete depending on the materiality as well as the
costs
• Consistency it requires our financial statements should be comparable which
means that we must use the same measures from one year to another so that
they can be easily compared unless there is a need like revaluing our assets.
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