Question

Disclosures are required to elaborate on certain items that are presented in summarized form in the financial statements. There are specific disclosure notes that are required to be present in all financial statements, while others may be unique to the disclosure needs of a particular company. Let's start by discussing the three required disclosures. Please pick one and explain what information is to be included in the note: Summary of Significant Accounting Policies Subsequent Events Third Party Transactions

Answer 1

Accounting Policies refer to the specific accounting principles, bases, conventions, rules and practices applied by an entity in the preparation and presentation of Financial Statements.

At the time of preparation of financial statements, an entity has a choice to choose an accounting policy in several areas. For e.g. the accounting policy choice for inventory can be FIFO or weighted average.

Disclosure of Accounting Policies

1. All the significant accounting policies adopted in the preparation and presentation of financial statements should be disclosed in one place.

2. Such disclosures should form part of financial statements.

3. Any change in an accounting policy which has a material effect should be disclosed. The amount should also be disclosed to the extent ascertainable. Where such amount is not ascertainable, fact should be indicated.

4. If a change is made which has no material effect but which is reasonably expected to have a material effect in later periods, the fact of such change should be appropriately disclosed in the period in which the change is adopted.

5. Disclosure cannot remedy a wrong or inappropriate treatment of the items in the accounts.

Some areas in which significant accounting policies can be disclosed in the financial statements are as below

- Basis of consolidation

- Goodwill

- Changes in Accounting policies

- Deferred Income taxes

- Intangible assets

- Foreign currency traslations

- Revenue recognition

- Use of estimates

- Property, plant and equipment and related depreciations

- Inventory and their pricing