In this article, we would like you to understand critical concepts that accounting and financial services in Dubai & UAE consider when choosing accounting policy regarding IFRS. But firstly, we need to understand accounting policies.
What are accounting Policies?
Accounting policies are detailed rules or principles inherent to a transaction, operation, or event when classifying and reporting financial statements (by a Dubai & UAE entity).
Accounting policies, measurement to presentations, incorporate recognitions and disclosures. But to determine the right accounting policy, many firms in Dubai & UAE opt to apply specific IFRS standards for their events, transactions.
This is primarily carried out to help users know the accounting policies adopted and how they have been adapted. IFRS, particularly FRS 18, defines accounting policies, bases, principles, rules, conventions, and practices implemented by a Dubai entity that stipulate how the impact of transactions and other factors are supposed to be reflected in the financial statements.
IFRS and Accounting Policies
All constituent factors and various entities in Dubai & UAE must adopt policies that allow their financial statements to highlight genuine and fair sight when it comes to IFRS. Additionally, accounting services should ensure the accounting policies under IFRS are consistent with the accounting standards requirements and the lawmaking body of the entity in question. But if compliance with the accounting standard is weak, the Dubai entities must move from that standard. Nonetheless, such cases hardly occur.
Typically, choosing the perfect accounting policy helps implement the proper transaction and decide whether to use different factors such as gains, losses, assets, or liabilities as recognition criteria. Or how to handle monetary volume to certain elements tailored on measurements and where to report them in the financial statement.
Read also: Benefits of Outsourced Accounting Services in Dubai
Going Concerned and Accruals
Two concepts in IFRS play a crucial role in choosing the right accounting policy.
- The accrual concept.
- The going concern concept.
Usually, chartered accountants in Dubai & UAE prepare financial statements because the particular entity is a going concern. This is primarily due to measures based on break-up values inclined not to be associated with users looking to weigh the ability of a Dubai company to generate revenue and be financially stable. Moreover, when preparing financial statements, chartered accountants must evaluate whether there are sufficient doubts about their company’s ability to continue as a going concern.
In addition, the accruals concept of accounting needs the non-cash effects of transactions to be recorded in the financial statements for the period they transpire. According to IFRS, the accrual concept depends heavily on the definitions of assets and liabilities stipulated in FRS 5 (Reporting the Substance of Transactions.
Keep in mind that the concept of accruals is related to realization. Entity legislation only allows net revenue recorded in the balance sheet to be added to the profit/loss account.
Reviewing Accounting Policies
IFRS requires companies in Dubai & UAE to analyze their accounting policies regularly and adjust them when necessary. But changing accounting policy is an undertaking that involves the significance of comparability because regular changes to accounting policies are not ideal since they make comparison extremely challenging.
Regardless, consistency is not the ultimate factor itself. It does not impact the introduction of improved accounting practices that lead to streamlined information for users.
Dubai companies must review their accounting policies before the standard becomes effective with the new financial reporting standard. Even though the bar doesn’t need early adoption of newly issued updates, it seems that it allows companies to do this.
IFRS, Estimation, and Accounting Policies
Estimation and accounting policies have a lot of similarities. These methods, under IFRS, are used by accounting services in UAE to determine the projected monetary amounts for elements of the financial statements.
But, the difference between estimation methods and accounting policies is crucial. FRS 15 states that a change in accounting policy is noted when there is a change to any of its elements. Hence, companies should choose methods to let financial statements give a genuine and fair view.
Also, notably, estimations are somehow subjective. FRS 18 needs estimates to be very accurate. But, it depends on the complexity of the estimation method used. In this case, benefit/cost considerations come into play.
In summary
In conclusion, concerning IFRS, it is essential to acknowledge that financial statements require accounting and financial services in Dubai to recognize the accounting policies chosen, specific details of changes to accounting policies, the individual essential estimation methods used, any necessary data for assessing an entity as a going concern, and information about accounting standard or entity’s lawmaking department in the interest of showing the genuine and fair view.
Read also: Accounting Entries How to Book Profit Sharing Under IFRS 16
