An accounting policy explains how accounting standards are applied when preparing financial statements.

Accounting standards set the rules that must be followed. An accounting policy explains how these rules are applied in practice, for example how assets are measured, how costs are recorded or when income is recognised.

Using the same accounting policies consistently makes financial statements clearer and easier to compare from one year to another.

Accounting standards are rules for how financial information is recorded and presented in financial statements.

The standards explain, among other things, how assets, liabilities, income and expenses should be recorded and measured. They also set out what information should be included in the financial statements.

The aim is to provide a clear and reliable picture of financial position and financial performance and to make it easier to compare financial information between years and between entities.

The Financial Statements of the Government of Iceland are prepared in accordance with the International Public Sector Accounting Standards (IPSAS).

IPSAS (International Public Sector Accounting Standards) are a set of international accounting standards developed specifically for public sector entities. They are issued by the International Public Sector Accounting Standards Board (IPSASB) to support transparent, consistent, and reliable financial reporting across the public sector.

IPSAS are largely based on International Financial Reporting Standards (IFRS) but are adapted to the specific characteristics of governments and other public sector organizations. The standards consider factors such as tax revenue, public service obligations, and long-term public commitments.

The aim of IPSAS is to improve financial reporting and strengthen public financial management in governments, municipalities, and other public sector entities.

Key features of IPSAS

Standards for the public sector

IPSAS are designed specifically for governments, municipalities, and international organizations.

Accrual-based accounting

Most IPSAS are based on the accrual basis of accounting, providing a more complete view of assets, liabilities, revenue, and expenses.

Adapted to public sector activities

The standards reflect the unique nature of public sector operations, including taxation, service delivery, and public policy objectives.

Transparency and accountability

IPSAS help improve the quality of financial information and promote transparency and accountability in the use of public funds.

What is IFAC?

IFAC (International Federation of Accountants) is the global organization for the accountancy profession. It supports the development of high-quality international standards, promotes professional excellence, and serves as a global voice for accountants and finance professionals.

For more information, visit the IFAC website

IFRS (International Financial Reporting Standards) are international accounting standards used by companies when preparing financial statements. Their purpose is to ensure that financial reporting is clear, reliable and comparable across companies and countries.

The standards define how assets, liabilities, income and expenses should be recognized and presented, as well as how information should be disclosed in financial statements.