Difference Between Policy and Legislation

Legislation is the compulsory requirement from the external force such as the government, local regulator, and any other authority. Without complying with this legislation, we may face the issue such as being removed from a particular member or even punished for being guilty.

Policy is the company’s set of rules which the company has set as the guideline to govern the internal code of conduct. It is approved by top management and use by all employees as the rule to follow in order to prevent the risk of error or fraud. Internal policies include HR policy, IT policy, accounting policy, and so on.

Accounting Policy and Accounting Standard (Legislation)

In accounting, the legislation is considered as accounting standard which is a set of standard, a procedure which the company needs to use as a basis to prepare financial statements.

Accounting Standard is a minimum requirement for the company to follow in order to comply with any specific set of standards such as GAAP, IFRS, or other local standards. Without fully follow all the standard, we will not be able to claim that our financial statements complied with any standard. The external auditor will not issue an opinion over our financial statement when we miss the compliance or they even qualify our report.


For example, IFRS set an accounting standard which covers all aspect guideline such as Inventory, PPE, Financial Instruments, Revenue, Share-based payment, business combination…etc. These are the general rule which can be used to apply to most of the businesses. They need to cover all parts of financial statements.

Other local regulations such as National Bank and local government requirements also consider as legislation.

Accounting Policy is a set of procedures set by the company as a road map to prepare the financial statement. It is the guideline which all employee must follow as the basis for a financial statement. The policy must fit with the business and comply with any accounting standard. However, it may include only some sections which relate to the business. Besides that, company policy may include some other rules set by the top management to prevent and detect fraud.


For example, ABC is a service company that complies with IFRS, its policy must comply with IFRS (Accounting Standard).  The policy includes the treatment of revenue & expense recognition, Fixed Asset, inventory, basic accounting report, and so on. However, it not included Financial instruments, Share-based payments, and Goodwill as they are not relevant to their business.