IAS 101 - Week 10

IAS 101 - Activity 10

April 6, 2021

IAS 101 - Week 10

What are Accounting Policies?

Accounting policies are rules and guidelines that are selected by a company for use in preparing and presenting its financial statements

Accounting policies are important, as they set a framework, which all companies follow, and provide comparable and consistent standard financial statements across years and relative to other companies.

Accounting policies can be selected to be

• Conservative

• Aggressive

Multiple Select

Accounting policies can be selected to be _______ or ________

• PAS1

• PAS2

• Conservative

• Aggressive

Full disclosure of accounting policies is important so that potential investors can better interpret a company’s financial statements.

Accounting policies can vary among different companies and geographies. However, most companies generally follow one of the two accounting standards

Multiple Select

The two accounting standards

• GSAAP

• IFRS

• GAAP

• PAS2

 Accounting policies are different from accounting principles, as the principles are the overarching accounting rules,

whereas policies are the way a company follows the rules.

Conservative accounting policies understate a company’s current financial performance and show better financial performance in subsequent years.

Aggressive policies tend to employ accounting policies in a way such that they overstate the performance in earlier years, and it leads to a decline in a company’s performance in later years (even though the company may be doing).

Multiple Choice

_____ policies understate a company’s current financial performance and show better financial performance in subsequent years. It is a more sustainable approach and it allows companies to show improvement over the years, which is a positive signal for investors.

• Conservative

• Aggressive

• Conservation

• Aggravate

Multiple Choice

________policies can also raise a red flag from auditors or investors if they feel management is misrepresenting earnings or allocating costs.

• Conservative

• Conservation

• Aggressive

• Agrarian

Prominent Accounting PoliciesAccounting policies can vary widely but all are included in the standards dictated by either the IFRS or GAAP. The list below mentions some key policies used by companies

• Valuation of fixed assets

• Depreciation and inventory policies

• Valuation of investments

• Translation of foreign currency items

• Recognition of profits on long-term contracts

Multiple Select

Prominent Accounting Policies

• Recognition of profits on long-term contracts

• Valuation of fixed assets

• Depreciation and inventory policies

• Valuation of investments

• Translation of foreign currency items

Open Ended

Explain what conservatism means, and give an example in your own words.