Accounting policies are the foundation of every company’s financial reporting. They define how transactions are recognized, measured and presented in financial statements, and underpin transparent, comparable and accurate information. Despite their importance, many companies still use policies that are outdated, incomplete or no longer reflect how the business operates.
In practice, we often encounter a document titled “Accounting Policies” that exists but:
- has not been updated for years
- does not reflect changes in the business
- does not cover newer accounting standards, for example those concerning revenue, leases, inventories and financial instruments
- uses terms and classifications that are no longer relevant
The result? A risk of inaccurate reporting, non-compliance, poor business decisions and additional questions from auditors or the tax authorities.
What are accounting policies, and why do they matter?
Accounting policies are the rules and guidelines a company follows when keeping its books and preparing financial statements. They cover:
- Measurement methods, such as cost or fair value for fixed assets and FIFO or weighted average cost for inventories
- Revenue and expense recognition policies
- Depreciation rates and methods
- Provisions and impairment allowances
- The treatment of financial instruments, leases, long-term contracts and more
Their purpose is to ensure consistent presentation of a company’s financial position and performance, as well as compliance with current standards and laws.
Why are regular updates necessary?
- Changes in accounting standards - IAS/IFRS and IFRS for SMEs are updated regularly. For example, IFRS 15 on revenue, IFRS 16 on leases and changes to the treatment of financial instruments under IFRS 9 may require policies and practice to change.
- Changes in the business model - New products, digital sales, new payment methods and changes in purchasing or logistics can all affect the recognition of revenue and costs.
- Internal and external requirements - Auditors, banks, a parent company or potential investors may ask for clear and current accounting policy documentation.
- Reduced risk during inspections - Tax and other authorities increasingly check whether actual practice is consistent with formally adopted policies.
What does updating accounting policies involve?
- Reviewing current policies to identify what still applies and what is outdated
- Aligning them with IFRS, IFRS for SMEs and local legislation
- Covering all relevant areas, including inventory, revenue, expenses, provisions, leases, foreign currency and tax
- Formal adoption by management or the board
- Training key staff, including accountants, controllers and managers
How often should policies be reviewed?
There is no legally prescribed interval, but the relevance of accounting policies should be reviewed at least once a year, especially after significant changes in legislation, standards or the business.
Conclusion: Accounting policies are a business tool, not a formality
Current, usable accounting policies support:
- accurate and reliable financial reporting
- easier communication with auditors and regulators
- better internal control and understanding of the business
- a sound basis for decision-making
If you are unsure when this document was last refreshed, it is probably time to give it serious attention.