Physics Wallah

Accounting Policies - Application, Changes

A change in accounting policies may be necessary as a result of newly released guidelines or the adoption of a different accounting technique.
authorImageIzhar Ahmad28 Nov, 2023
Share

Share

Accounting Policies - Application, Changes

Accounting policies include a specific collection of regulations, conventions, and principles that an organization adopts in a manner deemed accurate. The purpose of these policies is to compile financial statements and submit them to the appropriate governing body.

Changes to accounting policies are permissible solely if they arise from financial statements offering more dependable and relevant information about transactions and their impacts, including the effects of other events on financial status, performance, or cash flows, or if mandated by a standard or interpretation.

Selection and Application of Accounting Policies

  • When a specific Ind AS (Indian Accounting Standard) is applicable to a transaction, event, or condition, the accounting policy for that item should be determined by applying the relevant Ind AS. In cases where there is no specific Ind AS applicable, management must exercise judgment to develop and apply an accounting policy that provides information meeting two criteria:
(a) Relevance to the economic decision-making needs of users. (b) Reliability, ensuring that financial statements faithfully represent the entity's financial position, performance, and cash flows; reflect the economic substance rather than just the legal form of transactions, events, and conditions; remain neutral and free from bias; adhere to prudence; and are complete in all material aspects.
  • When exercising judgment, management should refer to the following sources in descending order:
(a) Ind AS requirements addressing similar and related issues. (b) Framework definitions, recognition criteria, and measurement concepts for assets, liabilities, income, and expenses. Additionally, in the absence of specific guidance from Ind AS, management may consider the most recent pronouncements from the International Accounting Standards Board and, if not available, those from other standard-setting bodies using a similar conceptual framework.

Consistency of Accounting Policies

An organization must consistently choose and apply its accounting policies for transactions, events, and conditions that are similar, unless a specific Ind AS mandates or allows the categorization of items, warranting different policies. In cases where an Ind AS necessitates or allows such categorization, a suitable accounting policy should be consistently chosen and applied to each respective category.

Looking for the Best Commerce Coaching?

Enroll Now in PW Commerce Batches!

Changes in Accounting Policies

An entity should only modify an accounting policy under two conditions: (a) Mandated by an Ind AS. (b) Results in the financial statements presenting information that is both reliable and more pertinent regarding the impacts of transactions, events, or conditions on the entity's financial position, performance, or cash flows. The following circumstances are not considered changes in accounting policies: (a) Applying an accounting policy to transactions, events, or conditions that substantially differ from those occurring previously. (b) Introducing a new accounting policy for transactions, events, or conditions that either did not occur previously or were inconsequential.

Disclosure Related to Changes in Accounting Policies

When the initial application of an Ind AS affects the current period, any prior period, or may impact future periods, an entity must disclose the following: (a) The title of the Ind AS. (b) If applicable, a statement that the change in accounting policy aligns with the transitional provisions of the Ind AS. (c) The nature of the change in accounting policy. (d) If applicable, details about the transitional provisions. (e) If applicable, information about transitional provisions that might affect future periods. (f) For the current and each prior period presented, to the extent possible, the adjustment amount: (i) for each affected line item in the financial statements. (ii) if the entity is subject to Ind AS 33 (Earnings per Share), for basic and diluted earnings per share. (g) The adjustment amount related to periods preceding those presented, to the extent possible. (h) If retrospective application, as required by paragraph 19(a) or (b), is impracticable for a specific prior period or for periods preceding those presented, the disclosure should include the circumstances leading to this impracticability and a description of how and from when the change in accounting policy has been applied.

Reasons for Changing Accounting Policies

Opting for changes in accounting policies is a significant decision that an entity should not take lightly. Such changes are justified only under the following circumstances:
  • There is a necessity for an overall organizational change, aligning with revised standards.
  • The change results in accurate statements containing more dependable and pertinent information, encompassing all transactions made by the company to date.
It's important to note that changes in accounting policies do not bear responsibility for transactions that did not occur in the past.
Read Related Topics
Market Equilibrium Fixed Number of Firms Annuity Method Breach of Contract Agricultural Diversification
Agreements Without Consideration Aggregators Accounting for Non Profit Organizations Basel Norms

Accounting Policies FAQs

What are the four types of accounting changes?

The four types of accounting changes are changes in accounting principle, changes in accounting estimate, changes in reporting entity, and correction of errors.

Why are accounting changes?

Accounting changes are made to improve the accuracy, relevance, or reliability of financial information, comply with new standards, or address evolving business needs.

What are the accounting policies?

Accounting policies are guidelines and principles adopted by an organization to prepare and present its financial statements consistently.

What is the IAS 8 accounting policy?

IAS 8 is a standard that provides guidelines for selecting and changing accounting policies, emphasizing consistency unless a change is necessary for fair presentation.

What is a change of accounting policy with an example?

A change in accounting policy could involve switching from FIFO to LIFO for inventory valuation.
Popup Close ImagePopup Open Image
Talk to a counsellorHave doubts? Our support team will be happy to assist you!
Popup Image
CTA Image
008448982616
Join 15 Million students on the app today!
Point IconLive & recorded classes available at ease
Point IconDashboard for progress tracking
Point IconMillions of practice questions at your fingertips
Download ButtonDownload Button
Banner Image
Banner Image
Free Learning Resources
Know about Physics Wallah
Physics Wallah is an Indian edtech platform that provides accessible & comprehensive learning experiences to students from Class 6th to postgraduate level. We also provide extensive NCERT solutions, sample paper, NEET, JEE Mains, BITSAT previous year papers & more such resources to students. Physics Wallah also caters to over 3.5 million registered students and over 78 lakh+ Youtube subscribers with 4.8 rating on its app.
We Stand Out because
We provide students with intensive courses with India’s qualified & experienced faculties & mentors. PW strives to make the learning experience comprehensive and accessible for students of all sections of society. We believe in empowering every single student who couldn't dream of a good career in engineering and medical field earlier.
Our Key Focus Areas
Physics Wallah's main focus is to make the learning experience as economical as possible for all students. With our affordable courses like Lakshya, Udaan and Arjuna and many others, we have been able to provide a platform for lakhs of aspirants. From providing Chemistry, Maths, Physics formula to giving e-books of eminent authors like RD Sharma, RS Aggarwal and Lakhmir Singh, PW focuses on every single student's need for preparation.
What Makes Us Different
Physics Wallah strives to develop a comprehensive pedagogical structure for students, where they get a state-of-the-art learning experience with study material and resources. Apart from catering students preparing for JEE Mains and NEET, PW also provides study material for each state board like Uttar Pradesh, Bihar, and others
Privacy Policy
Terms of use
Copyright © 2025 Physicswallah Limited All rights reserved.