Accounting Policies, Changes in Accounting Estimates and Errors.
Section 10 NIFF SMEs | IAS 8
In business, it is essential to establish the objectives and policies that strategically guide management. Globalization poses competitive business advantages, which, through the implementation of international standards in accounting-financial information, provide a better view of the economic results of the different business activities carried out globally.
Accounting policies are specific principles, bases, and procedures adopted by entities to prepare and present their financial statements, ensuring that these are interpreted appropriately by external users, including investors, banking entities, shareholders, and other interested parties.
Section 10 of the IFRS for SMEs and IAS 8 established the criteria and guidelines for business to prepare their financial statements in a way that allows transparency, clarity, and understanding of the policies used to reveal the entity's results.
The adoption of NIFF benefits the organization by reducing accounting-financial information processing costs, efficient reports, and better support for internal control.
Why are policies essential?
Companies that incorrectly recognize their income according to the activity, product, or payment terms may impact the result of the period and significantly affect the bottom line, generating an effect on profits that may represent a larger payment of dividends, taxes, or non-compliance with tax regulations as well as with its statutes that affect its shareholders.
In the above case, by Dec 31st of 2023, clear accounting policies will reveal that although we closed a sale for ¢1.000.000 in services, we will only pay taxes on the accrual of 70% of service delivered in 2023, and our shareholders will get the right dividend. Information that will be easy to read for any stakeholder in the financial statement notes to compare and analyze
Who define the Accounting Policies?
Management must use judgment to develop and apply an accounting policy that results in reliable and relevant information. In SMEs, this technical responsibility usually requires the close support of the accountant, tax advisor, and legal advisor.