The most important accounting policies that need to be documented
Documenting accounting policies is the cornerstone for the stability of financial statements, consistency of measurement, and compliance with accounting standards (IFRS/US GAAP or local standards). Documentation ensures that the same rules are applied across periods and that management can explain estimates and accounting choices to auditors, investors, and regulatory bodies. Below is a detailed list of core policies, what each policy should include, and a brief template for drafting a ready-to-use policy.
Why should accounting policies be documented?
Consistency of measurement across financial periods and prevention of accounting manipulation.
Compliance and transparency to auditors, regulatory bodies, and funders.
Facilitating the reporting process and reducing errors and discrepancies in application between departments.
Clarifying estimates and judgments that may affect financial results and decision-making.
List of core accounting policies (and what should be documented in each)
1. Revenue Recognition Policy
What to document:
Reference standards (e.g., IFRS 15).
Definition of performance obligations, timing of control transfer, and treatment of discounts and returns.
Policy for handling multiple-element contracts and recurring fees (subscriptions, after-sales services).
Practical examples and disclosure constraints.
2. Inventory Valuation Policy
What to document:
Measurement method (FIFO, weighted average, or specific identification).
Rules for calculating shipping and storage costs and deducting shortages.
Policy for testing net realizable value and writing down losses.
3. Property, Plant & Equipment
What to document:
Definition of assets, capitalization criteria for costs or expensing them.
Depreciation methods (straight-line, declining balance, units of production) and depreciation periods for each category.
Asset value review policy and disposal procedures.
4. Impairment testing.
What to document:
Testing criteria, loss measurement methodology, and testing frequency.
How to identify cash-generating units (CGUs).
5. Leases.
What to document:
Classification of lessee/lessor and recording of assets and liabilities (IFRS 16/ASC 842).
Handling changes in contracts and lease extensions.
6. Financial instruments and measurement.
What to document:
Classification of instruments (trading, measured at fair value, amortized cost).
Models for impairment provisions and recognition of returns.
7. Foreign currency.
What to document:
Presentation and measurement currency, and method for translating transactions and financial statements of foreign branches.
Handling exchange differences upon settlement.
8. Income taxes.
What to document:
Policy for calculating deferred and local income tax.
Dealing with tax claims and future deductions.
9. Provisions and contingencies.
What to document:
Definition of provision, recognition criteria (current obligation, probable outflow of resources, reliable estimate).
Disclosure of potential obligations and warranty obligations.
10. Capitalization of borrowing costs.
What to document:
When interest is capitalized and what periods are included.
11. Accounting estimates and judgments.
What to document:
Policies for selecting assumptions, levels that require management or board approval.
How to review estimates (e.g., useful life, allowance for doubtful accounts).
12. Related Party Transactions
What to document:
Framework for definition, disclosure, and approval.
13. Expense Recognition & Prepayments
What to document:
Rules for quarterly expense recognition and cost allocation over the benefit period.
14. Cash & Bank Reconciliation
What to document:
Timing of reconciliations, who signs, and review periods.
15. Disclosures Policy
What to document:
List of essential disclosures required according to the applicable accounting standard.
Who is responsible for preparing and reviewing disclosures.
16. Changes in Accounting Policies & Error Corrections
What to document:
Procedures for approving any change, when it is applied retroactively or prospectively, and disclosure requirements.
17. Document Retention & Policy Approval
What to document:
Retention period, form of storage (electronic/paper), access levels, and policy approval.
Typical content for each policy — what a single page should contain
Policy title
Purpose and scope — why it is adopted and who it includes (subsidiaries, branches).
Accounting reference — e.g., IFRS 15 or local standard.
Definitions — terms such as revenue, customer, contract.
The basic rule — the accounting principle followed in a clear format.
Practical application / Examples — Brief practical scenarios.
Required disclosures — What will be disclosed in the appendices.
Responsibility — Who prepares it, who approves it, and who reviews it annually.
Date and revisions — Release dates and last modification.
Summary template (ready policy model) — Can be copied and modified.
Title: Revenue Recognition Policy
Purpose: To clarify the rules for revenue recognition from the sale of goods and the provision of services.
Reference: In accordance with IFRS 15 — Revenue from Contracts with Customers.
Rule: We recognize revenue when control of the goods or service transfers to the customer, and to the extent of the consideration the company expects to receive. In multiple-element contracts, we distinguish performance obligations and recognize revenue separately based on the stand-alone selling price.
Examples: (1) Sale of a good for cash — Revenue recognized upon delivery; (2) Annual maintenance contract — Revenue recognized over time.
Disclosures: The appendices will disclose the policies, recognized amounts, and any unfulfilled performance obligations.
Responsibility: Finance Manager — preparation, Chief Financial Officer — approval, Board of Directors — annual review.
Release/Modification Date: 01-01-2025 / Last Modified: 30-12-2025.
Practical tips for implementing and updating policies.
Start with the most impactful: Begin with revenue, inventory, and fixed asset policies as they have the greatest effect on profit and assets.
Make the language clear and applicable: Avoid ambiguity—practical examples reduce interpretation.
Adopt a Responsibility Assignment Matrix (RACI) for each policy: Who is Responsible, Accountable, Consulted, Informed.
Synchronize with the IT team when ERP systems are in place as system settings reflect policies.
Periodic review (at least annually) or when systems change, growth occurs, or new legislation emerges.
Documentation of significant estimates (notes on assumptions, sensitivity of results to changes in assumptions).
Common mistakes to avoid
Writing overly general policies that cannot be practically implemented.
Not linking policies to the accounting system settings.
Ignoring required disclosures or failing to update them.
Lack of signatures and official approval from management or the board.
Not maintaining a record of changes (audit trail).
A quick checklist before approving any policy
Are the reference accounting standards clearly stated?
Do they include clear practical examples?
Have responsibilities and approvals been defined?
Is there guidance for disclosure in the financial notes?
Has the policy been linked to the system settings (ERP)?
Is there a review schedule and date of last modification?