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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Hyperinflation in Argentina

Hyperinflation in Argentina – Argentina is now (October 2019) considered to be a hyperinflationary economy. IAS 29 – Financial Reporting in Hyperinflationary Economies is therefore applicable to entities whose functional currency is the Argentine peso.

Assessment of the situation

Hyperinflation in ArgentinaIAS 29 sets out a number of quantitative and qualitative characteristics for the purpose of assessing whether an economy is hyperinflationary (IAS 29 3), including:

  • the general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency (e.g., the US dollar or the euro);
  • transactions are conducted in terms of a relatively stable foreign currency;
  • sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power
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Example of hyperinflation accounting

Example of hyperinflation accounting – Here is an example of hyperinflation accounting (change from functional currency (ARS) to presentation currency (USD)) and a limited disclosure on hedge accounting for a net investment in a foreign operation (Third-party financing of EUR operations in EUR-denominated notes).

  • Hyperinflation accounting

(Source: www.ft.com, ‘American companies count cost of Argentina inflation’ by Alistair Gray in New York and Benedict Mander in Buenos Aires APRIL 7, 2019)

‘Rampant inflation in Argentina has forced US companies to stop using the peso to account for their business in the country, triggering multimillion-dollar foreign exchange losses. Example of hyperinflation accounting

US accounting rules are requiring American businesses to use the dollar as their “functional currency” in Argentina because cumulative

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