7.2 Accounting Policies

2026 📋 Syllabus Objectives

By the end of this topic, you should be able to:

  1. Recognise the influence of international accounting standards and understand comparability as an objective in selecting accounting policies.
  2. Recognise the influence of international accounting standards and understand relevance as an objective in selecting accounting policies.
  3. Recognise the influence of international accounting standards and understand reliability as an objective in selecting accounting policies.
  4. Recognise the influence of international accounting standards and understand understandability as an objective in selecting accounting policies.

📚 Main Content

https://cambridgeassistant.com

What Are Accounting Policies?

Accounting policies are the specific rules, principles, and procedures that a business follows when preparing its financial statements. Think of them as the "rulebook" that a company uses to record and present its financial information.

Every business needs to prepare financial statements — documents that show how much money the business made or lost, and what it owns and owes. But if every business recorded information in completely different ways, it would be very difficult for anyone to understand or compare those records. That is why international accounting standards exist.

What Are International Accounting Standards?

International accounting standards are a set of globally agreed rules about how financial information should be recorded and reported. They are created by international bodies (groups of accounting experts from around the world) to make sure that businesses everywhere follow similar practices when preparing their financial statements.

These standards help businesses choose the right accounting policies — policies that make financial information as useful as possible. The key question when choosing an accounting policy is: "Will this make our financial information more useful to the people who read it?"

To answer that question, businesses use four key objectives (goals) when selecting their accounting policies:

  1. Comparability
  2. Relevance
  3. Reliability
  4. Understandability

Let's look at each one in detail.

Sign in to view full notes