Significant accounting policies in financial statements

2. Example of significant accounting policies

Significant accounting policies can be found in financial statements of public companies and there are plenty of them. Let’s take a look at some significant accounting policies as examples.

Cash and Cash Equivalents

This significant accounting policy comes from 2011 annual financial statements of Hill-Rom, Inc.

We consider investments in marketable securities and other highly liquid instruments with a maturity of three months or less at date of purchase to be cash equivalents. Investments which have no stated maturity are also considered cash equivalents. All of our marketable securities may be freely traded.


This significant accounting policy comes from 2011 annual financial statements of Zimmer Holdings, Inc.

Inventories are stated at the lower of cost or market, with cost determined on a first-in first-out basis.

Property and Equipment

This significant accounting policy comes from 2011 annual financial statements of Google, Inc.

We account for property and equipment at cost less accumulated depreciation and amortization. We compute depreciation using the straight-line method over the estimated useful lives of the assets, generally two to five years. We depreciate buildings over periods up to 25 years. We amortize leasehold improvements over the shorter of the remaining lease term or the estimated useful lives of the assets. Construction in progress is related to the construction or development of property (including land) and equipment that have not yet been placed in service for our intended use. Depreciation for equipment commences once it is placed in service and depreciation for buildings and leasehold improvements commences once they are ready for our intended use. Land is not depreciated.

Share-based Compensation

This significant accounting policy comes from 2012 annual financial statements of Micron Technology, Inc.

Stock-based compensation is estimated at the grant date based on the fair-value of the award and is recognized as expense using the straight-line amortization method over the requisite service period.  For performance-based stock awards, the expense recognized is dependent on the probability of the performance measure being achieved.  We utilize forecasts of future performance to assess these probabilities and this assessment requires considerable judgment.

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