Formation of accounting policy: basics and principles. Accounting policies for accounting purposes

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Accounting policies (AP) are specific principles and procedures applied by the company's management for the preparation of financial statements. It differs in certain ways from accounting principles in that the latter are rules, and policies are the way a company adheres to those rules.

Concept

Accounting policies for accounting purposes are a set of standards that govern how a company prepares financial statements. They are used specifically for complex accounting tasks such as depreciation methods, income recognition, preparation of research and development (R&D) costs, inventory value, and financial statement consolidation.

Accounting policy for reporting according to international standards. International Accounting Standard (IAS 8) defines PM as the principles, conventions, rules and practices applied by an entity in preparing and presenting financial statements.

Accounting policy is very importantto correctly understand the information contained in the financial statements and reports. An entity should clearly state the principles it has used in preparing its financial statements. The formation of such a document in a company is important, since many accounting standards allow alternative methods of processing the same transaction.

For example, IAS 2 gives entities a choice between using the weighted average method or the FIFO inventory method. If an entity does not disclose its accounting policy regarding the choice of inventory valuation method, users of financial statements will not be able to make comparisons with other entities.

IAS 8 provides the following guidance on the choice and use of PM.

It can be seen as the structure in which the company is supposed to operate. However, the structure is somewhat flexible, and company management can choose particular policies for accounting purposes that are beneficial to the firm's financial statements.

Necessity

Many enterprises underestimate the importance of accounting policy, interpreting it formally, therefore they do not take into account the effects that lead to inefficient management of the company, since various indicators of the company's activities depend on the chosen option, such as production costs, profit, tax and others.

The financial and economic activity of an enterprise is considered effective if the result is positive. If the financial resultanalyzed from the point of view of accounting, it is the most complex object of analysis, therefore, it needs to be improved, updated in accordance with new research.

Destination

When a company prepares a complex report or implements an accounting method, it needs to adhere to guidelines.

Accounting policies for accounting purposes may vary between companies: but whatever a firm does with respect to PM, it must comply with accounting principles (GAAP) or IFRS.

As senior management establishes criteria for maintaining the quality of products or services in a company, these policies are also set as criteria for presenting a reliable and accurate picture of accounting practices.

Accounting principles are at times lenient, and specific company policies are very important. External accountants hired to review the company's financial statements should review this company document to ensure that it complies with standard accounting principles.

UP is important for the following reasons:

1. Building the right foundation for bookkeeping. To formulate the financial affairs of a company, it needs to prepare financial statements. And if the financial statements are simply prepared without any indication, then there will be no consistency in them. Accounting policies help determine the consistency betweenfinancial statements. It also offers a solid foundation for a company to follow the correct structure and prepare its financial statements.
2. Disclosure. It is important for a company to disclose which accounting policies it followed. Since accounting standards allow you to present any balance sheet item in different aspects, proper disclosure of this document is important.
3. Providing benefits to investors. If companies mention the accounting policies they have used to prepare their financial statements, this will also help investors. By presenting it, companies ensure consistency in the preparation of financial statements. This consistency helps investors look at financial statements and compare them with other companies from similar and different industries.
4. The state can influence the company's financial statements. Since such documentation must be formed in accordance with accounting policies, companies always follow the correct structure. These firms should also keep in mind that they can only follow the EA that is made in accordance with GAAP or IFRS. Thus, the state can have a direct influence on the financial statements of the company, and the government can protect the interests of investors.

Requirements for accounting policies

In paragraph 6 of PBU 1/2008, the requirements for accounting policies are indicated:

• need to reflect all transactions and factors of economic activity;
• transaction accounting must be done in a timely manner;
• economic contentfactors transcends their legal form.

Moment of revenue recognition

Companies follow generally accepted accounting principles for revenue recognition. Revenue recognition is important for a company because it positively or negatively affects investors. The firm cannot recognize its revenue until it is earned by it. This does not mean that all income will be in cash. In the case of credit sales, earnings are also real.

For an accounting policy in which companies sell goods on credit and recognize it as income, two things are important. First, how can the first company collect money from sales on credit. And secondly, when income is recognized: at the moment of accepting credit funds or at the moment of receiving finance. PM has a significant impact on how revenue is recognized within a company.

Principles for the formation of accounting policies

PM changes in different organizations in different ways. Ultimately, the choice is based on determining the assessment methods, how accounts are managed, etc.

Principles of accounting policy formation are quite specific. They look like this:

1. The principle of completeness. The information must be as complete as possible, reflecting the true picture of the company's financial performance.
2. Principle of timeliness. Data should be reported on time.
3. The precautionary principle. Information must be real, not have hidden reserves.
4. Principle of priority of content over form.
5. Consistency principle.
6. The principle of rationality. Accounting should be optimal, based on the valueorganization or company.

Composition

UE should include:

• working chart of accounts;
• various accounting registers;
• primary forms of documents;
• inventory methodology and order;
• ways to value assets and liabilities;
• document flow, information processing;
• revision and control of business transactions;
• other items.

Basics of formation of accounting policy

The economic conditions prevailing at the present stage of development require enterprises to record and report in accordance with certain rules that must be applied every year. There are regulations of companies, thanks to which accounting is carried out, but freedom of choice is provided. Companies can choose from a variety of accounting methods that are most suitable for displaying business transactions in accounting. Limits on the use of any method are limited by the current legislation and the professionalism of the manager, chief accountant.

If the organization has just been created and registered, then the approval of the accounting policy is 90 days from the date of registration.

The main purpose of the formation of PM is to document accounting methods that are acceptable for work. Given the constant changes that are taking place in the economy, it seems appropriate to study the definition of the essence of the concept of "accounting policy" in the regulatory framework, which in turn underliesforeign economic activity of economic entities.

Any accounting organization begins with the basis of accounting policy formation. In order for the company to have the most efficient accounting system, the manager and chief accountant must choose from the available options the most suitable for reflecting the economic life of the company in the reports (choice of materiality level, depreciation method, method for assessing asset retirement, method for determining the allowance for assessing doubtful debts, calculation methods etc.).

Of course, these options have different consequences and lead to different results. It is obvious that the impact of some elements (for example, depreciation) can be traced over several years, the impact of others can only be detected in interim financial statements, and some do not affect financial results.

A good choice of methods such as depreciation, assessment of the disposal of inventories, accounting for transportation and procurement costs, the determination of an estimated reserve for doubtful debts is the key to further effective management of the enterprise.

The chief accountant is responsible for policy development, which corresponds to paragraph 4 of Article 6 of the Federal Law “On Accounting.”

Formation of an accounting policy is a difficult process, which is the choice and justification of one of several ways of organizing accounting. These methods must be permitted by law. The chief accountant must have knowledge of the regulatory framework.

In the absence of a document, the company faces a fine forArt. 126 of the Tax Code of the Russian Federation in the amount of 200 rubles for the company itself, and 300-500 rubles for the head.

Aggressive and conservative

As a rule, firms operate on the periphery of the two extremes in relation to accounting policies. Either the firm follows an aggressive approach or a conservative one.

Regardless of which approach a company takes, it should reflect the same in its financial statements and how accounting policies are followed in preparing financial statements.

Similarly, the impact on profits. An aggressive approach may end up producing more/less profits. And a conservative approach can do the same. A company must stick to one specific approach in order to maintain data consistency.

If a company changes its approach from aggressive to conservative or from conservative to aggressive, it should mention this point and explain why it is doing this to protect the interests of investors.

Accounting Standards

IAS 8 applies to the selection and application of accounting policies, accounting for changes in estimates and recording corrections of prior period errors.

The standard requires compliance with any IFRS applicable to a transaction, event or condition, and provides guidance on developing PM for balance sheet items that lead to reliable information. Changes in accounting policies and corrections of errors are generally accounted for retrospectively, while changes in accounting estimates are generally accounted forperspective basis.

An entity should consistently select and apply its accounting policies for similar transactions, other events and conditions, except where the standard requires or permits categorization of items for which a different policy may be appropriate. If the standard requires or allows such categorization, then the appropriate policy is selected and applied sequentially to each category.

Accounting policy and accounting for 2018

Among the main changes in 2018 are:

1. Defined the concept of policy for accounting purposes of different companies. A rule was introduced on the independent choice of the method of accounting, regardless of the choice of other companies. However, if the parent company has approved its own standards that are mandatory for use by affiliated organizations, then the subsidiaries choose management methods based on these standards, which were approved by the parent company. Since it is possible to ensure the comparability of organized data in a situation if they are reflected in accordance with the same rules. The last edition of PBU 1/2008 did not specify the procedure for the formation of UE by affiliated organizations.
2. The method of forming the UE for the purposes of accounting of the organization has been specified.
3. An organization now has the opportunity to unify its policy in accordance with IFRS and Russian standards.
4. The order of deviations from the general algorithm for creating an accounting policy is considered.
5. Now appeared in the accounting policythe need to fix its independence.
6. The concept of insignificance was introduced, it began to be understood as data that does not affect management decisions in accounting.
7. Subjects on simplified accounting acquired the right to apply the principle of rationality in relation to methods and methods of accounting.
8. For firms that prepare IFRS statements, they were allowed to give preference to IFRS over RAS.
9. It is possible to adjust a number of certain indicators at the beginning of the year.

UP when applying simplified code

Firms that have been granted the right to use simplified financial statements should pay attention to the specifics of drawing up accounting policies. These are usually small organizations. When forming a UE, such enterprises provide for accounting according to a simple system.

For them, it is possible to reduce the number of accounts in the work plan, the use of simplified registers. Some entities may generally keep records without the use of such registers, only using the Sales Book and simplified financial statements.

Relationship with taxation

Organization of accounting policy for tax accounting purposes implies the method of recognition of income (revenue) or expenses chosen by the taxpayer, as well as the method of accounting for other indicators. Income (revenue) is the central starting point in the study of this issue.

Among the changes in the UE for tax accounting purposes in 2018year highlighted:

1. Changed the cost accounting for the acquisition of fixed assets. The list of objects for which accelerated depreciation can be applied with a special coefficient that cannot be higher than 3.
2. Changes in accounting for R&D expenses have affected the list of expenses, where new types of expenses have been added.

The situation with the general taxation system

Features of accounting policy moments when applying the OSNO are as follows:

• property isolation;
• Activity allowed continuously;
• consecutive application of UE;
• clear temporal certainty required.

Changes also affected the information used in the preparation of the policy.

Information requirements for accounting policies BASIC:

• maximum detail reflection;
• timely action;
• rational accounting.

Accounting policy for simplification

Accounting policy of the simplified tax system "Income - expenses":

• you must use one of the methods for determining the amount of material costs: by the cost of a unit of stock, by average cost, by the cost of the first by the time of acquisition, by the cost of the last by the time of acquisition;
• you can take into account interest on loans;
• You can account for expenses in the form of rental payments.

For tax accounting, the features of the concept under study are as follows:

• in the tax policy it is necessary to indicate that the organization applies the simplified tax system for the correspondingobject;
• indicate by which method the organization evaluates the cost of goods sold.

Features for public institutions

Accounting policy for taxation of a budgetary institution has its own specifics:

• depends on the purpose of the institution;
• depends on funding sources;
• depends on the type of founders;
• depends on the degree of financial regulation.

These features leave their mark on the formation of UE for such companies.

The content of the policy for a budgetary organization is characterized by features:

• type and structure of the institution;
• subject, purpose of its activity;
• industry specifics.

Conclusion

An accounting approach to the use of accounting policies should not be based on a single transaction, event or condition. PM should be used in the context of the big picture and the preparation of financial statements and how those financial statements will be presented to investors.