What is Accounting Policies?
Accounting policies are the specific principles, bases, conventions, rules, and practices an entity applies in preparing and presenting its financial statements. Under IAS 8, policies must be applied consistently to similar transactions and changed only when required by a new standard or when the change produces more reliable and relevant information.
How It Works
- Select policies that comply with applicable IFRS.
- Apply policies consistently across periods.
- Change a policy only if required by a standard or to improve relevance/reliability.
- Apply changes retrospectively unless impracticable, restating prior periods.
- Distinguish policy changes from accounting estimate changes (applied prospectively).
Saudi Context
Saudi listed companies disclose their accounting policy choices in note 2 of their IFRS-compliant financial statements, including inventory costing (FIFO or weighted average), depreciation methods, revenue recognition, and financial instrument classification. SOCPA-aligned IFRS adoption began in 2017 for listed entities and 2018 for unlisted, and policy alignment is reviewed at every audit.
Example
A retailer chooses FIFO for inventory, straight-line depreciation for fixed assets (4 to 10 years), and the cost model for investment property. These policy choices are disclosed in note 2 and applied consistently. A change to weighted-average inventory costing would require retrospective restatement and detailed note disclosure under IAS 8.