Accounting Policy
Accounting policies are specific principles, rules, procedures, and practices used by a business in the preparation of financial statements. Accounting policies include methods, approaches, measurement systems, and procedures to present disclosure. The difference between the accounting policies and the accounting principles is that the accounting principles are a set of rules, which the company must obey.
Misstatements of information about financial reporting items are identified as material if they can affect the decisions of users. The choice and application of accounting policies should be based on the relevant International Financial Reporting Standards. When a company acquires assets from different methods such as loans, cash purchases, or lease options, management would need to refer to these policies and principles so that assets can be reflected accurately in financial statements.
Changes in Accounting Estimates
Accounting Estimates are frequently used in the preparation of financial statements. Thus, accountants cannot confidently predict the value of the bankruptcy value of an asset, its service life, as well as other parameters influenced by environmental factors. Accordingly, the receipt of new information leads to the need to revise previously made estimates. Evaluation involves professional judgment based on the most recent available data. For example, an estimate may be required to determine the number of debts, the degree of impairment, the fair value, the useful life, and the amount of liability for warranty service. Accounting estimates are approximate values that may need to be revised when additional information becomes available. Bookkeeping can also be used for keeping the record of accounting estimates.
Principles of Accounting and Financial Reporting
Some of the main principles of accounting and financial reporting are:
- The principle of business continuity
It means that the assessment of the assets and liabilities of the bank is carried out based on the assumption that its activities will continue.
- The principle of consistency
This principle requires banks to regularly (from year to year) apply their chosen accounting policies, i.e., a set of principles, methods, and procedures that are used by the bank to compile and present financial statements.
- The principle of prudence
Under this principle, accounting uses valuation techniques that should prevent underestimation of the assessment of liabilities and expenses. It also should avoid overvaluation of the bank’s assets and revenues.
- The principle of accrual and compliance of income and expenses.
According to this principle, to determine the financial result of the reporting period, it is necessary to compare the revenues of the reporting period with the expenses that were incurred to obtain these revenues.
Economic Operations
Economic operations are the actions or events which can influence various business and investment decision which will affect the structure of the assets, liabilities, and capital. Economic operations can influence the accounting policies because, over time, economic operations identify various loopholes in policies due to which policymakers require to amend the policies as per the current economic conditions.
Financial Policy
The short-term financial policy is a system of measures aimed at the smooth financing of the current activities of the corporation. Its main tasks are to carry out normal activities at the expense of existing capacities, ensure current financing, and generate its sources of financing. The goal of the financial policy is the use of finance to achieve strategic and tactical objectives. Financial policy is the most crucial element of the development of the corporation. It is not limited to the solution of local, isolated issues, such as market analysis, the development of the procedure for passing and negotiation of contracts, the organization of control over production processes, but is comprehensive.
One of its key tasks is to select the optimal mechanisms that allow achieving the set goals for the corporation in the shortest possible time and at the least cost. But, financial tactics are a financial policy aimed at solving specific current tasks, which are specified in the financial strategy of the corporation. It ensures a correct and timely change of financial ties, as well as redistribution of cash flows between resources of the corporation and between all structural and separate divisions.
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