O LevelAccountingCambridge (CIE)Revision Notes7. Accounting Principles & PoliciesAccounting Principles & PoliciesAccounting Policies

Accounting Policies (Cambridge (CIE) O Level Accounting)

Revision Note

Donna Simpson

Written by: Donna Simpson

Reviewed by: Dan Finlay

Accounting Policies

What are international accounting standards?

  • The international accounting standards are set by the International Accounting Standards Board

    • These detail the standards for the financial statements

  • The main purpose of following the international accounting standards is for:

    • Comparability

    • Relevance

    • Reliability

    • Understandability

Policy

Description

Comparability

  • The information for one financial period should be presented in a way such that it can used for comparisons

  • The information should be able to be compared with information from a previous period

  • The information should be able to be compared with information from a different business

Relevance

  • The accounting information should be provided in a timely manner so that it is relevant to the users

  • Financial decisions affecting the future of the business should be able to be made from the information

Reliability

  • The users of the data provided by the financial statements should be able to rely on the information provided

  • The information should be objective and free from bias, opinions and significant errors

  • The information should be capable of being independently verified

Understandability

  • The accounting information provided should be clear so that users can easily understand it

  • It can be assumed that the users have a reasonable understanding of accounting terms

Examiner Tips and Tricks

It is common for the last question on Paper 1 to give you a statement and ask you to select the related policy. Alternatively, you could be given a policy and asked to select a statement related to it.

Worked Example

The accountant for a business applied the accounting policy of relevance when they prepared the financial statements at the end of a financial period.

Which of the following is a direct effect of the relevance policy?

A

Interested parties make decisions using the financial statements.

B

Interested parties can easily understand the financial statements.

C

The financial statements can be independently verified.

D

Comparisons can be made with the previous financial statements of the business.

Answer

A

This is the correct answer

B

This is understandability

C

This is reliability

D

This is comparability

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    Previous:Accounting Principles
    Author
    Reviewer
    Donna Simpson

    Author: Donna Simpson

    Expertise: Accounting Content Creator

    Donna is a classroom practitioner with over 25 years experience in teaching accounting and business studies at GCSE A-Levels and undergraduate levels, both in the UK and abroad. She currently works for a Multi-Academy Trust (MAT) as a teacher, instructional coach and mentor to other teachers. Donna is also an AQA A Level Accounting examiner as well as the content creator of resources used by all accounting teachers across the Trust. She enjoys designing and creating resources that provides students with deeper understanding of the subject content. Donna has a Bachelor of Science Degree in Business Administration with major in Accounting and Finance (BSc Hons) and ACCA certified to Level 2.

    Dan Finlay

    Author: Dan Finlay

    Expertise: Maths Lead

    Dan graduated from the University of Oxford with a First class degree in mathematics. As well as teaching maths for over 8 years, Dan has marked a range of exams for Edexcel, tutored students and taught A Level Accounting. Dan has a keen interest in statistics and probability and their real-life applications.