Page 39 - CA_ELG_Volume I_ELG-Sample
P. 39

Paper            1     Principles and Practices of Accounting                Theoretical Framework 1.29






            1.18 Accounting Policies



           Accounting policies are specific accounting principles and methods of applying these prin-
           ciples adopted by the entity in the preparation and presentation of financial statements.


           1.18.1 Selection of Accounting Policies


           Accounting policy choice is an important policy decision which affects the financial posi-
           tion as well as performance measurement of the business entity. Inappropriate selection
           of accounting policy may lead to understatement or overstatement of financial position
           and performance.
             The financial statements should be prepared on the basis of such accounting policies,
           which exhibit true and fair view of state of affairs of balance sheet and the profit and
           loss account.

             The selection of accounting policies is depicted as in Fig. 1.10.



                                 Selection of Accounting Policies











                                                   Based on











                                                                         Substance
                             Prudence
                                                                         over Form










                                                  Materiality








                              Fig. 1.10  Basis for Selection of Accounting Policies




                           Copyright © Veranda Learning Solutions | www.verandalearning.com/ca
   34   35   36   37   38   39   40   41   42   43   44