What Is an Accounting Interpretation?

Mary McMahon
Mary McMahon

An accounting interpretation provides updated guidance on existing standards and practices for businesses and organizations. People are not required to use it in the preparation of financial statements, but it can offer clarity and helps accountants make use of the best possible practice in their work. Numerous authorities can issue accounting interpretations, including nation-level groups responsible for regulating accountants, as well as organizations like the International Accounting Standards Board (IASB).

Man climbing a rope
Man climbing a rope

Organizations that develop accounting standards attempt to create clear directives for handling a variety of financial situations, with some room for growth. As markets change, new financial products develop, and regulations shift, these guidelines can start to become less helpful. Most groups are in the process of continually redrafting, updating, and refining their guidelines. As a stopgap, they can issue an accounting interpretation to help people handle a change immediately, rather than having to wait for a fully updated standard.

This statement offers some guidance on an existing standard so accountants can apply it correctly to financial situations that may not have been foreseen when it was originally written. Eventually, when the guideline is updated, the accounting interpretation may be more formally integrated, along with other changes that may be necessary. Until that time, accountants do not have an obligation to use the information in the interpretation; they are allowed to interpret guidelines independently, to the best of their knowledge and ability.

Accountants tend to prefer to use best practice guidelines whenever possible, for consistency and to protect themselves from professional liability. When an accounting interpretation is issued, accountants can review it to see if it applies to their work and may make adjustments accordingly. In the event of a dispute, legal matter, or other issue, they can point to the statement to show that they complied with the recommendations made by a general accounting authority. This can offer some insulation from malpractice suits, where clients may attempt to argue that an accountant didn’t perform appropriately.

It may be possible to find complete guidelines along with interpretations online. Many accounting organizations have websites with this information available to the public or in a member’s area for people who are registered with them. Press releases are often published in conjunction with a new accounting interpretation to make members of the general public aware that a clarification on an existing standard is available. For those who prepare their own accounting statements and tax documentation, it can be helpful to check for guidance if they are unsure about how to proceed.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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