Until FAS 154 came along I thought I understood what an accounting policy was. They were the things that went into note 1 to the financial statements for situations where there was an accounting choice between two alternatives. Rather curiously whatever choice you made ended up providing a fair presentation as long as you were consistent and disclosed it in Note 1.
FAS 154 came along and said that one of the most obvious of accounting policy choices was not really an accounting choice at all. That was the choice in the depreciation method. That choice is really only a way of estimating the fair value of depreciation expense. (I won’t say a way to estimate the fair value of the asset because that would obviously never be correct.) Then of course you get to thinking. What accounting policy is not merely an estimating technique? The answer seems to be that all of them are there to estimate the results fairly.
Well that it not quite true of course. Some accounting policies have nothing to do with presenting the results fairly. Take for example LIFO for inventories. Nobody would claim this to be a fair method for valuing the inventory at cost or any other sensible value. Mind you most of those other balances on the balance sheet are at equally stupid values based on the cost principle.
So I might allow a change from a silly policy like LIFO to a more sensible policy to be sort of a change in an accounting policy that requires correction to prior periods. Actually I don’t really think it is a change in an accounting policy. It’s really correcting an error and so it’s appropriate to go back and correct prior financials.
However, my question is whether there is such a thing as a real accounting policy that is not an estimating method and whether FAS 154 has any purpose other than to provide guidance on correction of errors in the guise of an accounting policy.