Forming accounting policy for the objectives of accounting
Accounting policy – in accordance with the accounting legislation of the Russian Federation, a set of accounting methods adopted by the organization – primary observation, value measurement, current grouping and the final summary of the facts of economic activity. Methods of accounting include methods of grouping and evaluation of the facts of economic activity, repayment of assets value, organization of documents circulation, stocktaking, ways of using accounts, system of registers, information processing and other methods and techniques.
The formation of accounting policy affects many areas of business and is not only the creation of reporting documents for accounting purposes.
Basics of forming (the choice and justification) and the disclosure (making public) accounting policy of the enterprise were disclosed in the PBU 1/94 “Accounting Policy of the Enterprise”, approved by Order of the Ministry of Finance of Russia from 28.07.1994 № 100 . Due to the accounting reform in accordance with international standards, this Regulation was later replaced by the PBU 1/98 (Order of the Ministry of Finance of Russia dated 09.12.1998 N 60n), and in 2008 – by the PBU 1/2008 “Accounting policy of the company”.
According to the Accounting Policy 1/2008 (par. 2) the accounting policy of an enterprise is the total method of accounting (primary supervision, value measurement, current grouping and final generalization of the facts of economic activity) adopted by the enterprise.
There are the following types of accounting policies:
- Accounting policy for accounting purposes
- Accounting policies for tax accounting purposes
- Accounting policies for reporting under international standards (for example, US GAAP, IFRS)
Accounting policies for accounting purposes are governed by the following legal and regulatory documents:
- Federal Law “On Accounting” No. 402-FZ
- Regulations on Accounting (PBU 1/2008)
The accounting policy for accounting purposes, depending on the specifics of the organization’s activity, may address the following main issues:
- The working chart of accounts.
- Forms of primary accounting documents and accounting registers used by the organization. 3.
- The method of accounting for the acquisition and procurement of materials. 4.
- The method of accrual of depreciation:
– linear (evenly throughout the useful life);
- Methods of accounting for receipt and disposal of inventories:
– at average cost; at cost per unit of inventory; FIFO.
- The method of accounting for transportation and procurement costs in relation to goods for trade organizations:
– in the cost of purchase of goods and their repayment as these goods are sold;
- Method of accounting for goods by retail organizations:
– at purchase prices (without taking into account the markup);
- The method of distribution of revenues depending on the specifics of the organization’s activity according to the following items:
– income from ordinary activities;
- The way of determining the revenue from work, services and the sale of products with a long production cycle (construction, scientific and design work, shipbuilding, etc.):
– as the work, service, products are ready;
- Method of accounting for special tools, special devices, special equipment and special clothing:
– as materials.
Formation of the accounting policy is a long process. Every calendar year it is necessary to review it. The chief accountant or the person substituting him, who temporarily carries out accounting within the company, is responsible for forming the accounting policy of the company. The accounting policy is approved by the organization before or at the very beginning of the fiscal year. There is no need to approve the accounting policy annually if it has not been changed.
According to court rulings and the will of the legislature, the formation of accounting policies is the responsibility of the organization’s chief economist, not management and third-party executives. In one case the judge sued the chief on the basis of this article, but the Supreme Court of RF reversed the way he imposed sanctions on his subordinates and emphasized that the accountant must and must be responsible (Decree of the Supreme Court of RF of 9.06.2006).
According to the Federal Law “On Accounting” changes in the procedure of internal economic audit should take place on a regular basis to optimize the system of calculations and management. Also, if necessary, they must be supplemented and transformed in accordance with new conditions.
Structure of accounting policy
- A list of the main documents of the economic department, the same records on the analysis of assets and accounts of the enterprise, the methods of valuation of assets and accounts.
- The rules of business processes and technology of processing of the received information, influencing and controlling the work of the company orders.
- Other decisions.
Usually accounting policy provisions are divided into accounting policy provisions for accounting purposes and accounting policy provisions for tax accounting purposes. As a rule, both are approved under one intra-company document – the order on the accounting policy.
Appendices are usually made out to the order of the accounting policy: working chart of accounts, forms of primary documents used by the company and other information that is part of the accounting policy.
Formulation, adoption and amendment
The policy is approved by the order of the head and binds all structural parts of the organization. In accordance with Article 21 of the Federal Law on Accounting, firms that have subsidiaries have the right to develop and approve their own standards for linking these companies. Consequently, if the respective company (head office) determines the principles, the subsidiary is obliged to accept them accordingly and to follow them rigorously.
According to Clause 6 of PBU 1/2008 the following requirements to the accounting:
- completeness (completeness of reflection of all the facts of economic activities in the accounting);
- timeliness (timely reflection of the facts of economic activity in the accounting and financial statements)
- circumspection (accounting policy of organization should provide greater readiness to the recognition in accounting of expenses and liabilities, than possible profits and assets, not allowing creation of latent reserves);
- priority of the contents over the form (reflection in accounting of the facts of economic activity, proceeding not so much from their legal form, as from their economic contents and business conditions)
- consistency (identity of data of analytical accounting to the turnovers and balances of synthetic accounting accounts on the last calendar day of each month)
- rationality (rational accounting on the basis of economic conditions and the size of the organization).
From January 1, 2013 the new law on accounting from 06.12.2011 № 402-FZ came into force. An important innovation is the absence of the requirement for the mandatory use of standardized forms of primary accounting documents approved by the State Statistics Committee of the Russian Federation. Now the forms of primary accounting documents used in the organization are approved by its head.
According to the point 5 of the article 8 of the law “About accounting” the accounting policy adopted by the newly created organization should be applied from year to year. The accounting policy can be supplemented or changed only if
- legislation changes;
- new accounting methods are introduced;
- there is a change of ownership, etc.
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