The summary of significant accounting policies is a section of the footnotes that accompany an entity's financial statements, describing the key policies being followed by the accounting department. This summary is usually placed at or near the beginning of the footnotes.
The policy summary is mandated by the applicable accounting framework (such as GAAP or IFRS). These frameworks require an entity to disclose its most important policies, the appropriateness of those policies, and how they impact the reported financial position of the entity.
The disclosure of accounting policies is particularly important in situations where an organization chooses to follow policies that depart from the policies generally used within its industry. By perusing these policies, the investment community will have a better understanding of how the accounting policies used could alter the reported financial results and financial position of an entity.
The policy summary can include policies from a broad range of operational and financial areas, including cash, receivables, intangible assets, asset impairment, inventory costing, types of liabilities, revenue recognition, and capitalized costs.