Accounting Policies: Concept, Importance and Practical Examples (NIF 2025 Update)

1. What are accounting policies?

Accounting policies are the set of principles, bases, rules and specific procedures that an entity adopts to recognize, value, present and disclose its operations and economic events in the financial statements.

Its correct application allows:

• Maintain consistency in financial information.
• Facilitate comparability between periods and with other entities.
• Ensure that information is useful and reliable for investors, partners, and authorities.

Regulatory basis updated to NIF 2025

• NIF A-1: Conceptual Framework of Financial Reporting Standards.
• NIF A-2: Uncertainties about ongoing business.

(The old NIFs A-2 to A-8 were repealed; accounting policies must now be aligned with the new Series A fundamentals.)

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2. Importance of accounting policies

Accounting policies play a strategic role in generating quality financial information:

1. Clarity and uniformity:
   They establish clear criteria for recording transactions, avoiding subjective criteria that distort information.
2. Security against external reviews:
   They facilitate internal and external audits and tax reviews, demonstrating that records comply with regulatory criteria.
3. Regulatory compliance:
   They avoid the risk of observations, tax adjustments, or penalties for reporting incorrect information.
4. Decision support:
   Senior management and investors rely on comparable and transparent figures to assess profitability and risks.
5. Support for the going concern hypothesis:
   According to NIF A-2, policies must consider the entity's ability to continue operating for at least 12 more months.
6. Relevance in business groups and consolidated financial statements:
   • When a company consolidates either combines financial statements, having uniform accounting policies is essential for the aggregate results to be consistent.
   • Companies that lack clear accounting policies face:
     • Lack of comparability between its subsidiaries or periods.
     • Transparency issues, generating distrust among investors or authorities.
     • Important adjustments in audits, which delay the presentation of financial information.

In my professional practice, I have seen many companies operate without formal policies, resulting in financial statements that are "only compliant" for tax purposes but are neither reliable nor useful for decision-making or attracting investment.

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3. Recommended structure of an accounting policy

Each accounting policy must include:

1. Name of the accounting item (e.g. Inventory, Income, Cash).
2. Regulatory basis according to current NIF.
3. Recognition criteria (when the asset, liability, income or expense arises).
4. Valuation criteria (how its book value is determined).
5. Presentation criteria (where in the financial statement it will be shown).
6. Disclosure criterion (additional information in notes).
7. Practical example to show your application.

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4. Detailed examples of accounting policies

4.1 Cash and cash equivalents

• Applicable standard: NIF C-1
• Recognition: Cash, banks and equivalents with maturity less than 3 months.
• Valuation: Nominal value; foreign currency at the closing DOF exchange rate.
• Presentation: Current assets, first line.
• Disclosure: Amounts by currency type, usage restrictions, and bank location.

4.2 Inventories

• Applicable standard: NIF C-4
• Recognition: When acquiring them for sale or production.
• Valuation: Average cost that includes purchase price and direct expenses.
• Presentation: Current assets.
• Disclosure: Valuation method, balances by type of inventory and guarantees granted.

4.3 Income

• Applicable standard: NIF D-1
• Acknowledgment: When control is transferred to the client.
• Valuation: Agreed amount net of returns and discounts.
• Presentation: Income statement.
• Disclosure: Recognition policies, deferred revenue and collection risks.
• Practical example: Sale of machinery recognized at the time of physical delivery.

4.4 Property, plant and equipment (Depreciation)

• Applicable standard: NIF C-6
• Recognition: At acquisition cost.
• Depreciation: Straight line based on useful lives.
  • Furniture: 10 years.
  • Computer equipment: 3 years.
• Presentation: Non-current assets less accumulated depreciation.
• Disclosure: Depreciation methods, useful lives and residual values.

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5. Professional conclusion

Accounting policies, under the NIF 2025 framework, not only meet a regulatory requirement, but are a pillar for the transparency and financial comparability.

In my professional experience:

• Document them clearly prevents accounting and tax risks.
• Simplify internal and external audits, reducing times and adjustments.
• Strengthens confidence of partners, investors and authorities.
• In companies with multiple subsidiaries, Uniform accounting policies avoid distortions in consolidation and improves transparency to third parties.

A company that operates without clear policies loses credibility, generates unhelpful financial statements, and exposes itself to tax and reputational risks. However, those who implement and update them in accordance with NIF 2025 demonstrates professionalism, improves its corporate governance and is better positioned to attract investment.