Question Tag: Draft Accounting Policy

Areas to be covered by accounting policies include:

• Basis of accounting: The entity needs a clear policy on the basis of accounting it intends to adopt for the preparation of its financial statement. This policy guides the recognition and measurement of assets, liabilities, revenues, and expenses in the books of accounts.
• Revenue recognition and measurement: Specific policy is required for the recognition and measurement of each type of revenue to the entity.
• Inventory valuation: The accounting policies adopted in measuring inventories, including the cost formula used.
• Depreciation of property, plant, and equipment: The policy should detail out the depreciation methods used and the useful lives or depreciation rates to be applied.
• Measurement of PPEs: The measurement bases to be used for determining the gross carrying amount.
• Foreign currency transactions: Policies on how foreign currency transactions and foreign operations in the financial statements of an entity and how to translate financial statements into a presentation currency. The principal issues are which exchange rate(s) to use and how to report the effects of changes in exchange rates in the financial statements.
• Provisions/allowance for uncollectible revenues: Policies on how to make general and special allowances on revenue receivables and other receivables.