Understanding Accounting Policies
Accounting policies are a set of standards and guidelines established by homeowner associations to govern how financial transactions and events should be recorded and reported. They are derived from Generally Accepted Accounting Principles (GAAP), a common set of accounting principles, standards, and procedures that companies follow when they compile their financial statements.
The accounting policies of a homeowner association may cover areas such as revenue recognition, inventory valuation, depreciation methods, and accounting for certain types of expenditures. The policies should be consistently applied to ensure comparability and consistency in the association’s financial statements.
Importance of Accounting Policies
Accounting policies are crucial for a homeowner association as they provide a framework for recording and reporting financial transactions. They ensure that the association’s financial statements are prepared in accordance with the relevant accounting standards, thus providing reliable and comparable financial information to the association’s members and other stakeholders.
Furthermore, the accounting policies can help the association to maintain financial discipline, prevent fraudulent activities, and enhance the credibility of the association’s financial statements.
Changing Accounting Policies
Changes in accounting policies should be made only if the change is required by a standard or an interpretation or if the change results in the financial statements providing reliable and more relevant information. Any changes in the accounting policies should be disclosed in the notes to the financial statements, along with the reasons for the change and its impact on the financial statements.
