Accounting policies
In one sentenceThe specific principles and methods the business chooses for preparing and presenting its financial statements, such as the inventory valuation method and the asset depreciation method.
Simply put
When a standard allows more than one method, the business chooses one and applies it consistently from year to year, so that comparison is possible.
A policy is changed only if a standard requires it or it gives better information, and the change is applied retrospectively and disclosed (under IAS 8). The significant policies are stated at the start of the notes.
Example
An auto parts store chooses to value its inventory at weighted average cost and applies it every year. It is not acceptable to switch to FIFO (first in, first out) for one year because that year's profits would look higher, and then switch back.
Don't confuse it with
Accounting estimatesThe policy is the method (straight-line, for example), and the estimate is the figure within it (a useful life of five years); a change in estimate is applied prospectively.