The Difference of Accounting Principles and Accounting Policies

Whenever you think of your company’s finances, the accounting tasks you need to accomplish also come to mind. This is because the accounting industry is primarily tasked to handle the finances of both individuals and entities – making it a vital service for all sectors.  

With this, it is crucial for those within the field to understand the importance of their role and the governing policies and regulations that they should adhere to.  

Read: Understanding the Regulatory Changes in Accounting 

 
As was said above, the field of finance and accounting has ready set rules and regulations to provide accountants with a standard to follow, making financial records consistent with that of others for easier interpretation and evaluation. 

The Difference of Accounting Principles and Accounting Policies 

When finance and accounting professionals get acquainted with what is required of them in their workplace, two terms commonly appear: Accounting Policies and Accounting Principles. So, how do they differ? 

In a nutshell, Accounting Principles are a set of rules and regulations collectively followed by entities who have common grounds or geographic locations while Accounting Policies are set by entities for internal adherence within their finance and accounting team. 

 
Accounting Principles 

Accounting principles are defined rules and guidelines set by different finance and accounting regulatory bodies that are enforced in certain areas with some being accepted globally. For finance and accounting professionals, learning the accounting principles they have to adhere to in school and their line of work is the first priority when pursuing a career in this field.  

Some countries set their own principles that all entities must adhere to in all their financial dealings – these are usually set by their own government sector. In some countries, however, some principles are widely accepted by several countries and regions.  

An example of a widely accepted principle is the Generally Accepted Accounting Principles (GAAP) set by the Financial Accounting Standard Board (FASB) in the U.S. These principles are then also followed by countries who have dealings with the U.S and have adopted them into their own countries’ financial practices. 

These principles are set to make sure that financial proceedings for all entities confined in the same location, industry and the like are the same, making documentation, collaboration and compliance easier for everyone involved.  

Accounting Policies 

Accounting policies, unlike accounting principles, are specific standard operating guidelines that companies, organizations and entities can implement internally. Given that the results would still adhere to the relevant accountant principles applicable to their locality, industry and dealings, entities have the freedom to implement different workflows and processes for their financial management in a way that works for how the company runs. 

These policies are more flexible than accounting principles as entities can easily change their policies according to the current needs of their finance and accounting department. Usually, accounting policies are created and implemented for quality control and assurance. 

As a professional who is looking to enter the finance and accounting field, you must first orient yourself to the different accounting principles. Once you begin working for a company or entity, you will be given accounting policies to adhere to. 

Are Companies Required to have their Own Accounting Policies? 

 
While it is certainly beneficial to create standard procedures for your own accounting team that would lead to consistent financial outputs such as bookkeeping documentation, revenue projections and financial reports, it is still not required. 
 
Most companies, through strategic planning, usually find a way to streamline and unify all their financial processes and stick with it, making it the standard that employees ultimately have to follow.  

In a nutshell, accounting principles represent the overarching rules and standards that guide financial reporting, ensuring consistency, transparency, and comparability across industries and countries, making it easier to refer to financial records as needed.   

However, accounting policies reflect the methods, choices, and practices adopted by specific companies and organizations to implement those principles in practice.  

Understanding the difference between these two concepts would allow those aspiring to enter the finance and accounting industry to know how to properly build the knowledge, skills and credentials needed to do so.  

Read Next: 7 Common Accounting Errors and How to Correct Them 

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