Example accounting policies

Example accounting policies

Get the requirements for properly disclosing the accounting policies to provide the users of your financial statements with useful financial data, in the common language prescribed in the world’s most widely used standards for financial reporting, the IFRS Standards. First there is a section providing guidance on what the requirements are, followed by a comprehensive example, easy to tailor to the specific needs of your company.Example accounting policies

Example accounting policies guidance

Whether to disclose an accounting policy

1. In deciding whether a particular accounting policy should be disclosed, management considers whether disclosure would assist users in understanding how transactions, other events and conditions are reflected in the reported financial performance and financial position. Disclosure of particular accounting policies is especially useful to users where those policies are selected from alternatives allowed in IFRS. [IAS 1.119]

2. Some IFRSs specifically require disclosure of particular accounting policies, including choices made by management between different policies they allow. For example, IAS 16 Property, Plant and Equipment requires disclosure of the measurement bases used for classes of property, plant and equipment and IFRS 3 Business Combinations requires disclosure of the measurement basis used for non-controlling interest acquired during the period.

3. In this guidance, policies are disclosed that are specific to the entity and relevant for an understanding of individual line items in the financial statements, together with the notes for those line items. Other, more general policies are disclosed in the note 25 in the example below. Where permitted by local requirements, entities could consider moving these non-entity-specific policies into an Appendix.

Change in accounting policy – new and revised accounting standards

4. Where an entity has changed any of its accounting policies, either as a result of a new or revised accounting standard or voluntarily, it must explain the change in its notes. Additional disclosures are required where a policy is changed retrospectively, see note 26 for further information. [IAS 8.28]

5. New or revised accounting standards and interpretations only need to be disclosed if they resulted in a change in accounting policy which had an impact in the current year or could impact on future periods. There is no need to disclose pronouncements that did not have any impact on the entity’s accounting policies and amounts recognised in the financial statements. [IAS 8.28]

6. For the purpose of this edition, it is assumed that RePort Co. PLC did not have to make any changes to its accounting policies, as it is not affected by the interest rate benchmark reforms, and the other amendments summarised in Appendix D are only clarifications that did not require any changes. However, this assumption will not necessarily apply to all entities. Where there has been a change in policy, this will need to be explained, see note 26 for further information.

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IFRS 7 Complete Maturity analysis disclosure

IFRS 7 Complete Maturity analysis disclosure – IFRS 7 requires certain disclosures to be presented by category of an instrument based on the IFRS 9 recognition and measurement categories of financial instruments.

Certain other disclosures are required by class of financial instrument. For those disclosures an entity must group its financial instruments into classes of similar instruments as appropriate to the nature of the information presented. [IFRS 7 6]

The two main categories of disclosures required by IFRS 7 are:

  1. information about the significance of financial instruments [IFRS 7 7 – 30]
  2. information about the nature and extent of risks arising from financial instruments [IFRS 7 31 – 42]

So IFRS 7 bets … Read more

Financing activities

Financing activities - Activities that result in changes in the size and composition of the contributed capital and borrowings of the entity.

Financial assets example

Financial assets example are a.o. loans and receivables, financial assets at fair value through profit or loss, derivatives designated as hedging instruments

Cash and cash equivalents

Cash and cash equivalents - Cash is defined as 'Cash on hand and demand deposits'. Cash equivalents is defined as 'Short-term, highly liquid investments.....

Changes in liquidity and risk of cash equivalents – The 1 Read

Changes in liquidity and risk of cash equivalents – Cash equivalents are short-term, highly liquid investments with a maturity date that was 3 months or less at the time of purchase. The definition of cash equivalents makes reference to them being both highly liquid and subject to an insignificant risk of changes in value. Changes in liquidity and risk

In other words, there is very little risk of collecting the full amount being reported. So if a corporate bond matures within three Changes in liquidity and riskmonths, but the company that issued it may not be able to settle the debt, one would not be able to include that as a cash equivalent.

In general, amounts that initially meet the definition of cash equivalents … Read more

Group cash pooling and company accounts

Group cash pooling and company accounts – Cash pooling arrangements arise where one group entity (which may be the ultimate group parent, or a fellow subsidiary) acts as the treasury function for the rest of the group. Under these arrangements, one entity within a group holds and maintains all cash balances with an external financial institution(s) and advances funds to group entities. Group cash pooling and company accounts

Often, a group treasury function is used in order to make the most efficient use of cash resources within a group, and to enable hedge accounting transactions to be entered into at group-level at the lowest overall cost. Typically, the group entities that act as a treasury function are not financial institutions. … Read more

Financial crises and excessive leverage – How 2 best understand it

Financial crises and excessive leverage – Contrary to popular opinion, stock markets generally continue to reflect companies’ intrinsic value during financial crises. For instance, after the 2007 crisis had started in the credit markets, equity markets too came in for criticism.

In October 2008, a New York Times editorial thundered, “What’s been going on in the stock market hardly fits canonical notions of rationality. In the last month or so, shares in Bank of America plunged to $26, bounced to $37, slid to $30, rebounded to $38, plummeted to $20, sprung above $26 and skidded back to almost $24. Evidently, people don’t have a clue what Bank of America is worth.”

Far from showing that the equity market was broken, … Read more

The Statement of Cash Flows

A Historical Perspective on the Statement of Cash Flows

In 1987, the Financial Accounting Standards Board (FASB) issued an accounting standard, FASB Statement no. 95, requiring that the statement of cash flows be presented as one of the three primary financial statements. Previously, companies had been required to present a statement of changes in financial position, often called the funds statement. In 1971, APC Opinion no. 19 made the funds statement a required financial statement although many companies had begun reporting funds flow information several years earlier.

The funds statement provided useful information, but it had several limitations. First, APB Opinion no. 19 allowed considerable flexibility in how funds could be defined and how they were reported on the statement. Read more