Internal accounting policies

What it means

Internal accounting policies are the entity’s own rules recording the choices the law leaves to it: the working chart of accounts, document flow, how stocktakes run, the depreciation plan, exchange rates, inventory valuation.

The law requires them and an inspection uses them as the benchmark: it judges not whether the method is the best possible but whether the company follows what it set for itself.

Accounting policies are not the same as the work rules or other employment regulations. Those govern employees’ duties and the Labour Code sets how they are issued; an accounting policy binds mainly the way the company records and values its transactions.

How it works in practice

A useful policy runs to a few pages and is written so a newcomer can apply it: who approves documents, by when they are handed in, which rate is used, how small purchases are booked.

It is updated when systems, processes or legislation change. A document from the founding year, signed by people no longer in the organisation, is not a policy.

In a small s. r. o. the policy most often fixes the threshold for low-value assets that go straight to expenses, how meals and travel allowances are booked, and who approves invoices and how. We draft it, the director signs it, and from its effective date the company follows it.

What to watch out for

When taking over the books, the policies are the first document we ask for. Their absence almost always means identical cases were booked differently in the past and comparability across years is broken.

Changing a policy during the year, for example a different method of valuing stock, must not be used to adjust the result retrospectively. A change of method has to be justified and its effect described in the notes; otherwise neither the auditor nor the tax administrator in an audit will accept it.