FRS 18 deals primarily with the selection, application and disclosure of accounting policies. Its objective is to ensure that for all material items:

• an entity adopts the accounting policies most appropriate to its particular circumstances for the purpose of giving a true and fair view;
• An entity should prepare its financial statement on a going concern basis, unless:
  1. the entity is being liquidated or has ceased trading, or
  2. the directors either intend to liquidate the entity or to cease trading, or have no realistic alternative but to do so.
• the accounting policies adopted are reviewed regularly to ensure that they remain appropriate, and are changed when a new policy becomes more appropriate to the entity’s particular circumstances; and
• sufficient information is disclosed in the financial statements to enable users to understand the accounting policies adopted and how they have been implemented.

The FRS supersedes SSAP 2 ‘Disclosure of accounting policies’, which was published in 1971. Although in many respects SSAP 2 was still broadly satisfactory, the framework within which it discussed accounting policies was out of step with modern accounting. The FRS updates that framework to make it consistent with the ASB’s Statement of Principles for Financial Reporting.

The FRS came into force for accounting periods ending on or after 22 June 2001, except for certain requirements relating to Statements of Recommended Practice (SORPs), which come into force for accounting periods beginning on or after 24 December 2001. Earlier adoption is encouraged.

In October 2009 the Financial Reporting Council published guidance for UK entities to assist them in making their assessment at going concern. The guidance may be downloaded above.

Summary of requirements of FRS 18

The FRS requires accounting policies to be consistent with accounting standards, Urgent Issues Task Force (UITF) Abstracts and companies legislation. Where this constraint allows a choice, the FRS requires an entity to select whichever of those accounting policies is judged to be most appropriate to its particular circumstances for the purpose of giving a true and fair view.

An entity should judge the appropriateness of accounting policies to its particular circumstances against the objectives of

The constraints that an entity should take into account are the need to balance the different objectives, and the need to balance the cost of providing information with the likely benefit of such information to users of the entity’s financial statements.

An entity’s accounting policies should be reviewed regularly to ensure that they remain the most appropriate to its particular circumstances. An entity should implement a new accounting policy if it is judged more appropriate to the entity’s particular circumstances than the present accounting policy.

The FRS requires specific disclosures about the accounting policies followed and changes to those policies. It also requires, in some circumstances, disclosures about the estimation techniques used in applying those policies.