Question

What should be disclosed in the notes regarding accounting policies?

Answer 1

The notes regarding accounting policies should include the basis of measurement, recognition criteria for financial elements, judgments made, methods of asset valuation, and changes in policies to provide transparency and enhance comparability in financial statements.

Step-by-step explanation:

When discussing what should be disclosed in the notes regarding accounting policies, these notes form an integral part of the financial statements and are essential for understanding the basis on which the statements have been prepared. They include such critical information as:

• The basis of measurement used in the financial statements (e.g., historical cost, fair value).
• The recognition criteria for assets, liabilities, income, and expenses.
• Any judgments made in applying the accounting policies that have a significant effect on the amounts recognized in the financial statements.
• Methods used for depreciating assets, valuing inventories, and recognizing revenue.
• Changes in accounting policies and the impact of such changes.

These disclosures provide transparency and enhance the comparability of financial statements, allowing users to better understand the financial position and performance of the entity.

Answer 2

The notes regarding accounting policies should disclose the specific accounting practices, such as recognition of revenue, inventory valuation methods, and depreciation practices that a company uses to prepare its financial statements for better clarity and comparability.

Step-by-step explanation:

Notes regarding accounting policies are an essential part of financial statements, providing additional clarity and context for the figures presented. They should disclose the specific accounting policies that the company has adopted to prepare its financial statements. This includes the basis of consolidation, recognition of revenue, inventory valuation, depreciation methods, foreign currency transactions, and any other significant accounting practices that could impact the understanding of the financial condition and results of operations.

These notes are important as they ensure comparability across periods and with other companies by informing readers about the methods and assumptions used in quantifying financial information. For example, if a company recognizes revenue upon shipment of goods, this policy must be disclosed to differentiate it from a company that recognizes revenue upon receipt of goods by the customer. Similarly, if one company uses the straight-line method for depreciation and another uses the declining balance method, this can lead to different profit margins and asset values, which should be clear from the notes.