Disclosure issues: Accounting Policies

Question 1

AASB 108: Accounting Policies

Answer 1

Para 5 Definition: accounting policies are the specific principles, bases, conventions, rules and practices applied by entity in preparing and presenting FS
E.g. depreciation methods, valuation of inventory and NCA

Rationale: to provide guidance for preparers and transparency for users – enhance decision usefulness and understandability

Question 2

Selection and Application

Answer 2

Para 7: When an accounting standard specifically applied, policies to the item shall be determined by applying the standard

Para 10: In absence of an AASB, use judgement to develop policy that is

• Relevant
• Reliable (faithful representation)

Question 3

Consistency of Accounting Policies

Answer 3

Para 13: Entity shall select and apply policy consistently for similar transactions, events and conditions

• FS allows users to review financial performance, so if change accounting policy, would likely affect profit figure (but may not necessarily mean improved performance). So consistency important to ensure comparability, both within entity and with other similar entities

Question 4

Change in Accounting policies

Answer 4

Para 14: entity shall change policy only if

(a) required by AASB, or
(b) results in FS providing more reliable an relevant info

• Need disclosure: nature of change, reasons, adjustment of line items