What does IAS 8 clarify about accounting policies?

What does IAS 8 clarify about accounting policies?

• A. They should be changed frequently
• B. Consistency and relevance must be ensured
• C. They can be ignored if not material
• D. They must reflect current market conditions

Answer: (B)

IAS 8 provides guidance on the importance of consistency and relevance in accounting policies. The standard emphasizes that entities should apply their chosen accounting policies consistently over time, ensuring comparability of financial statements. This consistency allows users of the financial statements to better understand and interpret an entity’s financial position and performance. Additionally, the relevance of accounting policies means that the policies adopted should adequately reflect the financial transactions and events of the entity, providing users with useful information for decision-making purposes. By prioritizing both consistency and relevance, IAS 8 ensures that the financial statements provide a faithful representation of the entity's financial performance and position. In contrast, changing accounting policies frequently could undermine the fundamental principles of consistency and comparability, while ignoring accounting policies due to immateriality could lead to a misrepresentation of the entity's financial statements. Furthermore, requiring policies to reflect current market conditions could introduce subjectivity and inconsistency, which IAS 8 aims to mitigate through its principles.

IAS 8 provides guidance on the importance of consistency and relevance in accounting policies. The standard emphasizes that entities should apply their chosen accounting policies consistently over time, ensuring comparability of financial statements. This consistency allows users of the financial statements to better understand and interpret an entity’s financial position and performance.

Additionally, the relevance of accounting policies means that the policies adopted should adequately reflect the financial transactions and events of the entity, providing users with useful information for decision-making purposes. By prioritizing both consistency and relevance, IAS 8 ensures that the financial statements provide a faithful representation of the entity's financial performance and position.

In contrast, changing accounting policies frequently could undermine the fundamental principles of consistency and comparability, while ignoring accounting policies due to immateriality could lead to a misrepresentation of the entity's financial statements. Furthermore, requiring policies to reflect current market conditions could introduce subjectivity and inconsistency, which IAS 8 aims to mitigate through its principles.