Frs 18

jessherdman

Hi, currently stdying ECR and FRA :huh: bit of a struggle, but one thing i am completely unsure of is FRS 18. in one of the papers i've done it asks you to answer a question in relation to these guidelines. Can anyone help?

Thanks

peugeot

FRS 18 is the accounting policies standard in UK GAAP. Accounting policies are basically the policies and procedures adopted by a company in terms of their financial reporting.

For example, they might adopt a policy of depreciating motor vehicles at 25% on a reducing balance basis, other companies in the same sector may depreciate them at 25% straight line. The accounting policies adopted by a company must be appropriate to them. Inappropriate accounting policies will result in financial information being potentially misleading.

FRS 18 concerns the policies a company should adopt to ensure their financial statements are:

comparable;
understandable;
relevant; and
reliable.

The standard also goes on about changes to accounting policy. To achieve comparability, if we change an accounting policy (let's say we have decided to value stock on a weighted average basis because this basis is more appropriate, but last year we did on a FIFO basis) then we must go back to the previous year and restate the opening figures and opening reserves to apply the change retrospectively. In other words as if we had valued last years stock on a weighted average basis. This achieves the concept of comparability.

If we decide to change our depreciation rates from 25% reducing balance to 25% straight line, we do not have to go back to the previous year because the asset is still being measured at the same value (at cost), we have just changed the estimate of its useful life. Thus a change in estimation technique = no prior year adjustment (see FRS 3 for these), a change in accounting policy = a prior year adjustment.

Hope that helps.

Steve

numberjunky

Looking at most of the past papers it occasionally crops up but even then you are only asked to name two of them.

I remember it like this -

In FRS18 these policies 'oCURR' (yes I know the spelling is incorrect)

o
Comparable
Understandable
Reliable
Relevant


Just as an extra note I remember SSAP5 is VAT because 'V' is the Roman numeral for 5.