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Mistaken idea
"The policy note was acceptable last year, so we can copy it this year without checking the company's transactions or accounting methods."
Reusing prior wording can save time, and an unchanged policy may still need the same explanation. The mistake is treating last year's wording as evidence that this year's note is correct.
Correction
An accounting policy note explains methods used to prepare the statements. Check whether the company still uses the stated methods and whether its transactions, choices permitted by accounting guidance, or reporting requirements have changed. Keep accurate language; revise language that no longer describes the company. A generic claim that the company follows generally accepted accounting principles (GAAP) does not explain its significant policies.
For example, assume a manufacturer properly uses first-in, first-out (FIFO) for inventory, a method that assigns the earliest costs to goods sold first. A copied note saying that it uses weighted-average cost describes a different method. Even if the inventory calculation is correct, the note misleads readers about that amount. Correct the note to describe the method actually applied and check the applicable disclosure requirements.
Check your reasoning
The copied note describes a transaction the company no longer has. Is the fact that the note appeared last year enough to retain it?
Check the answer
No. Determine whether the information remains relevant to the periods presented or is otherwise required. Prior publication alone does not establish that it belongs in the current note.
When this mistake may appear
- The policy appeared last year.
- A disclosure checklist has a policy-note row.
Your work may contain this mistake if:
- Says only that the entity follows GAAP.
- Describes transactions the entity does not have.
- Confuses policy with estimate or business fact.
- Copies authority without stating the entity's method.