What
are financial policies?
Financial policies are
rules, bases, guideline for the preparation of financial statement. There are
two ways of framing the financial policies i.e. international accounting
standard and management judgment.
When
international accounting guideline is followed?
International accounting
standard are followed, when an item of financial statement is covered by the
international accounting standard, otherwise, management can use its own
judgment for policy formulation for items not covered International accounting
standards?
What
factor are important factor while selecting accounting policies?
The management must
consider that financial policies would produce reliable information, and that
information must also be relevant to meet the user financial decision needs.
What
is consistency of accounting polices?
Management should apply
the policies consistently on similar items, unless those items are differently
categorized or different policy is applicable on that item in accordance with
requirement of International accounting standard.
For example management can
not apply straight line methods to some plant and reducing balance methods to
other plant.
What
is change in accounting policy?
The accounting policies
can only be changed when this is required by the international accounting
standard, or other policy would result in more appropriate presentation. The
change should be applies retrospectively i.e. all presented account must be
changed accordingly.
