Publication date: February 2, 2026
The valuation of assets and liabilities is one of the fundamental mechanisms of financial accounting, determining the recognition of economic events in financial statements. Through the valuation process, economic events are translated into measurable monetary terms, enabling the preparation of a balance sheet, profit and loss account, and other elements of a financial statement. Both the Polish Accounting Act and international financial reporting standards are based on the assumption that there is no single universal valuation method. The accounting system allows for the use of diverse valuation bases, depending on the type of asset, its purpose, and the expected realization of future economic benefits or liabilities. This leads to a mixed valuation model, in which cost-based and market-based solutions coexist. Against this backdrop, changes in international accounting regulations, including the annual amendments to IFRS and IAS effective from 2026 and the introduction of the new IFRS 18 standard, are particularly significant. Although these regulations do not directly change the basis for the valuation of assets and liabilities, they do impact the presentation and disclosure of the effects of adopted valuation decisions. The purpose of this article is to discuss the principles of valuation of assets and liabilities in accounting, taking into account the regulations of the Accounting Act and international financial reporting standards, as well as to present the significance of the changes in force from 2026 for financial reporting.
Valuation in accounting is one of the key mechanisms for reflecting economic events in the financial information system. Its essence lies in determining the monetary values at which individual assets and liabilities are recorded in the accounting records and presented in the entity’s financial statements. This process enables the translation of economic phenomena, often intangible or spread over time, into measurable financial categories, which is a necessary condition for preparing the balance sheet, profit and loss account, and other elements of the financial statements. Valuation in accounting is not a one-time process. It encompasses both the initial valuation, performed upon recognition of a given asset or liability in the accounting records, and the balance sheet valuation, performed at least as often as the balance sheet date. The initial valuation serves to establish the value at which a given asset begins to function in the accounting system, while the balance sheet valuation aims to update this value in light of economic, legal, and market changes that occurred during the reporting period. In practice, this means considering factors such as the degree of wear and tear of assets, their loss of useful or commercial value, changes in market conditions, and the risk associated with meeting obligations. The importance of valuation in accounting stems from its direct impact on the amounts of assets, liabilities, and equity reported in the financial statements, as well as on the entity’s financial result. The adopted valuation principles and methods determine not only the level of individual balance sheet items but also the structure of the financial result and its division into operational, financial, and other components. Consequently, valuation plays a significant role in the economic decision-making process of financial statement users, such as investors, creditors, financial institutions, and supervisory authorities. The particular importance of valuation is also evident in the context of financial statement comparability. Applying consistent and coherent valuation principles enables the analysis of changes in the entity’s financial situation in subsequent reporting periods and the comparison of financial data between different entities. At the same time, it should be emphasized that applicable accounting regulations do not provide for a single universal valuation method.
Both the Accounting Act and International Financial Reporting Standards allow for the use of diverse valuation bases, depending on the nature of the asset, its intended use, and the purpose of the financial information. Consequently, valuation in accounting is not merely technical. Its application requires professional judgment, estimates, and interpretation of economic events in light of their economic substance. This means that the valuation process is an area where accounting law standards intertwine with economic assessment and the entity’s manager’s responsibility for the accuracy of the presented information. The primary goal of valuation is to provide a true and fair view of the entity’s assets, financial position, and financial performance, in accordance with applicable accounting principles.
The principle of prudence is one of the fundamental accounting principles and plays a key role in the process of valuing assets and liabilities. Its importance lies in ensuring that the values reported in the financial statements do not overstate the entity’s assets and financial position or understate its liabilities. This principle is one of the main tools for protecting the credibility of financial information, particularly from the perspective of creditors and other users of financial statements. The normative basis for the principle of prudence in the Polish accounting system is found in the Accounting Act, which requires the valuation of assets and liabilities using actual purchase prices or production costs, while taking into account risks and potential losses. This principle is expressed by the obligation to include all known charges in the financial result, even if their exact amount is not yet certain, and by limiting the recognition of revenues and profits to those that are certain. In the practice of asset valuation, the principle of prudence manifests itself primarily in the obligation to continuously assess their ability to generate future economic benefits. If there are indications of permanent or temporary impairment of an asset, the entity is required to recognize an appropriate impairment loss. This applies to both fixed and current assets, regardless of whether they are used in operating activities or held for investment purposes. This mechanism prevents the presentation of values in the balance sheet that are not economically justified. The principle of prudence is also widely applied in the measurement of liabilities. Liabilities should be recognized at the amount due, taking into account all circumstances known at the balance sheet date that may affect their amount.
A specific manifestation of this principle is the creation of provisions for known risks, impending losses, and the effects of other events whose occurrence is probable, but uncertain as to timing or amount. These provisions should be measured at a reasonable, reliably estimated amount corresponding to expected future cash outflows. Limiting the symmetry between the recognition of losses and gains is also an important element of applying the principle of prudence. While potential losses should be recognized immediately upon identification, potential gains can only be recognized once they become certain. This asymmetric nature of the prudence principle is intended to prevent excessive optimism in valuation and mitigate the risk of manipulating financial results through overly liberal estimates of asset values. Applying the prudence principle, however, does not imply arbitrariness or excessive conservatism in valuation.
On the contrary, it requires making rational and justified judgments based on available information, taking into account both internal and external factors. In this context, documenting the adopted assumptions and estimation methods is particularly important, allowing for the assessment of the accuracy of the valuation during the financial statement audit and supervisory review. The prudence principle therefore serves to stabilize the accounting system, reducing the risk of presenting an overstated view of the entity’s assets and financial situation. Its proper application requires not only knowledge of accounting law but also the ability to economically evaluate economic events and an awareness of responsibility for the accuracy of financial information.
The general principles of asset and liability valuation in the Polish accounting system are regulated by the Accounting Act, specifically Articles 28–30. These regulations establish a legal framework for determining the carrying amount of individual assets and their financing sources, specifying both the permissible valuation bases and the timing of valuation. According to the Act, valuation should be performed no less frequently than on the balance sheet date, taking into account the principle of prudence and the need to provide a true and fair representation of the entity’s financial position.
For fixed assets, such as fixed assets and intangible assets, the principle is valuation at acquisition price or production cost, less depreciation or amortization charges and impairment losses. The use of a revalued amount is also permissible if the revaluation was performed under separate regulations. This approach reflects the dominant role of historical cost in the valuation of long-term assets. Different principles are provided for assets classified as investments. In the case of investment properties and other assets held for investment purposes, the Act allows for valuation at fair value or market price, which allows for ongoing reflection of changes in the economic value of these assets. This valuation is crucial for presenting the financial position of entities whose activities include investment asset management and enhances the usefulness of financial information for users of financial statements. A special category is constituted by tangible current assets, which are valued at acquisition or production cost, but not higher than the net realizable value at the balance sheet date. This solution clearly reflects the principle of prudence and is intended to prevent inventories from being recorded at a value exceeding the realizable economic benefits. A similar approach is applied to receivables, which are recognized at the amount due, taking into account the risk of their uncollectibility through the creation of impairment write-downs. The valuation of liabilities is generally based on the amount due. The Accounting Act requires consideration of all circumstances known at the balance sheet date that may affect the amount of liabilities, including contingent liabilities and risks that justify the creation of provisions. These provisions should be valued at a reliably estimated amount corresponding to expected future cash outflows, which is crucial for the accurate presentation of the entity’s financial liabilities. A key element of the general valuation principles is the regulation regarding assets and liabilities denominated in foreign currencies. As of the balance sheet date, they are valued at the average exchange rate announced by the National Bank of Poland for a given currency. Consequently, exchange rate differences arise, which impact the entity’s financial performance and constitute a significant element of financial reporting, particularly for entities conducting international operations. The general valuation principles defined in the Accounting Act are framework-based and require further specification within the entity’s adopted accounting policy. The selection of permissible valuation methods should take into account the specific nature of the entity’s operations, the materiality of financial information, and the need to ensure consistency and comparability of data presented in the financial statements. Responsibility for the correct application of these principles rests with the entity’s manager, which emphasizes the importance of valuation as an area that combines accounting law standards with professional accounting judgment.
In reporting practice, a mixed valuation model is used, combining cost and market elements. The basic and most commonly used valuation method is the historical cost method. It involves recognizing assets at acquisition or production cost, while liabilities are measured at the amount the entity is obligated to pay to settle them. This method is characterized by a high degree of objectivity and verifiability, as it is based on data derived from source documents. Therefore, it is the dominant valuation basis for fixed assets, intangible assets, and most liabilities. However, its limitation is the lack of ongoing consideration of changes in the market value of assets, which, under certain circumstances, can lead to discrepancies between the carrying amount and the economic value of assets. The present value method, also known as the discounted cash flow method, complements the cost approach. In this approach, assets are measured at the discounted value of future cash inflows expected to accrue to the entity, while liabilities are measured at the discounted value of future outflows required to settle them. This method is primarily used for provisions, long-term liabilities, and asset impairment testing. However, its use requires the adoption of a number of assumptions and estimates, which increases the importance of professional judgment and the risk of subjective valuation. The realizable value method, also known as the realizable value method, also plays a significant role in accounting. It involves valuing assets at the net realizable selling price at the balance sheet date. This method is particularly important for inventories and assets at risk of impairment. Its use is a direct implementation of the prudence principle and aims to prevent balance sheet values from exceeding potential economic benefits. For certain asset categories, particularly investment and financial assets, the fair value method is permissible. This method involves valuing assets at the value at which they could be exchanged between knowledgeable, willing, and unrelated parties. Fair value allows for a current reflection of market conditions, but its application may be limited by the availability of an active market or the need to use valuation models. For this reason, this method is associated with a heightened importance of disclosures and documentation of adopted assumptions. In accounting practice, these valuation methods are rarely used in their pure form. Most often, they are applied in combination, with historical cost as the starting point, and mechanisms for revaluation, impairment losses, or fair value revaluations serving as corrective measures. This approach reconciles the requirement for the reliability and verifiability of financial data with the need to ensure their decision-making usefulness for financial statement users.
Changes in International Financial Reporting Standards and International Accounting Standards effective from 2026 and the principles of valuation of assets and liabilities
The year 2026 brings significant changes to International Financial Reporting Standards and International Accounting Standards, resulting from the annual reviews of standards conducted by the International Accounting Standards Board. These amendments have been approved for application in the European Union by European Commission regulations and are effective for reporting periods beginning on or after 1 January 2026. Their primary goal is to eliminate interpretative ambiguities and improve consistency in the application of the standards in reporting practice. The scope of the amendments includes, among others, IFRS 1 “First-time Adoption of IFRSs,” IFRS 7 “Financial Instruments: Disclosures,” IFRS 9 “Financial Instruments,” IFRS 10 “Consolidated Financial Statements,” and IAS 7 “Statement of Cash Flows.”
These amendments are primarily clarifications and streamlining in nature, but their practical significance is particularly evident in the areas of disclosure and documentation of accounting assumptions and judgments. With respect to IFRS 1, the amendments focus on clarifying the scope of information disclosed by entities adopting IFRS for the first time. The amendments aim to provide greater transparency regarding the impact of the transition to IFRS on the financial position and performance of the entity. While these regulations do not alter the basis for measuring assets and liabilities, they require a more detailed presentation of the effects of the valuation methods used, which is important for the comparability of financial data during the transition period. Of particular practical importance are the amendments to IFRS 9 and IFRS 7, which concern financial instruments. These amendments expand the scope of disclosures regarding, among other things, financial risk, hedge accounting, and the impact of concluded contracts on future cash flows.
In particular, hedge accounting is permitted for certain energy-related contracts entered into for the entity’s own purposes, while also requiring disclosure of information enabling the assessment of the impact of these transactions on financial results. These amendments do not modify the principles for measuring financial instruments; however, they do increase the scope of information necessary to understand the adopted valuation assumptions and the effects of their application. The amendments to IFRS 10 and IAS 7, however, aim to clarify the requirements for consolidation and the presentation of cash flows. In the case of IFRS 10, the amendments streamline the guidance on assessing control over subordinated entities, which may indirectly affect the scope of consolidated assets and liabilities and, consequently, their presentation in the financial statements. The amendments to IAS 7, in turn, focus on expanding disclosures regarding financing sources and cash flows, including in the context of supplier financing arrangements, which enhances the transparency of financial information. It should be emphasized that the annual amendments to IFRS and IAS effective from 2026 do not introduce fundamental changes to the basis for measuring assets and liabilities. The existing valuation methods remain in effect. Therefore, these amendments do not directly modify the method for determining the carrying amounts of assets and liabilities. However, their significance is reflected in their indirect impact on the valuation process by increasing the scope of required disclosures and strengthening the role of professional judgment. Entities preparing financial statements are required to document the methods, assumptions and estimates adopted in more detail, which promotes greater transparency of financial information and enables users of financial statements to more fully assess the effects of the valuation principles applied.
IFRS 18 as a new standard for presenting financial results and its importance for the analysis of financial statements
A key amendment to international financial reporting standards is IFRS 18, “Presentation and Disclosures in Financial Statements,” published by the International Accounting Standards Board in 2024. This standard replaces the existing IAS 1 and is the result of years of work to improve the transparency and comparability of information presented in financial statements prepared in accordance with IFRS. Unlike annual amendments to IFRS and IAS, which are primarily focused on itemized and streamlined changes, IFRS 18 introduces systemic changes to the presentation of financial results and disclosures.
A central element of IFRS 18 is a new, unified structure of the profit and loss statement. The standard introduces the requirement to classify income and expenses into three basic categories: operating activities, investing activities, and financing activities. Entities are required to present specific subtotals, specifically operating income, earnings before financing and income taxes, and net income. This solution significantly limits the existing freedom in shaping the structure of the income statement, which under IAS 1 led to significant differences in presentation between entities. Although IFRS 18 does not modify the principles for determining their carrying amounts, it does affect the presentation of valuation effects, such as impairment losses, changes in fair value, or financing costs. For example, uniformly assigning specific items to operating or financing activities facilitates the assessment of the extent to which an entity’s results are influenced by core activities and the extent to which they are influenced by financial or investing events. Another new element introduced by IFRS 18 is the new disclosure requirements for management-defined performance measures (MPMs). Entities that use alternative performance measures in communications with investors or in periodic reports will be required to formally define them, indicate their calculation method, and link them to items presented in the financial statements. This requirement is intended to reduce the risk of selective data presentation and increase the transparency of financial information. From the perspective of asset and liability valuation, the importance of IFRS 18 lies in the need to consistently link adopted valuation methods to the presented performance measures. Entities will be required to more clearly disclose the extent to which specific valuation decisions, particularly those related to fair value, impairment, and provision estimates, affect the presented financial indicators. This strengthens the role of professional judgment and the documentation of adopted accounting assumptions. Another important area regulated by IFRS 18 is the principles of aggregation and disaggregation of financial information. The standard emphasizes grouping items based on their common economic characteristics and avoiding excessive aggregation, which could complicate the understanding of an entity’s financial position. This is particularly important with respect to operating expenses, which can be presented by type, function, or in a mixed format, while also requiring the disclosure of additional information to enable proper interpretation of the data. The standard provides for retrospective application, which requires the restatement of comparative data. In practice, this may impact the interpretation of previously presented financial results and the manner in which financial information is communicated to stakeholders.
The analysis confirms that the valuation of assets and liabilities remains one of the most sensitive areas of accounting law, where legal standards do not eliminate the need for professional judgment. The lack of a single, universal basis for valuation makes a consistently developed accounting policy and proper documentation of adopted methods and estimates crucial. The principle of prudence continues to play a central role in the valuation system, limiting the risk of overstating the value of assets and understating liabilities. Its importance is evident not only in corrective mechanisms such as impairment losses and provisions, but also in the approach to assessing risks and uncertainties related to future cash flows. The changes to International Financial Reporting Standards, effective from 2026, do not lead to a restructuring of the valuation basis, but rather reinforce the importance of transparency and disclosure. IFRS 18 plays a particularly important role in this regard, increasing the visibility of the effects of valuation decisions in the financial statements through changes to the structure of the profit and loss account and new disclosure requirements. As a result, the valuation of assets and liabilities should be perceived not only as an element of accounting technique, but as a process of significant informational and legal significance, influencing the interpretation of financial results and the assessment of the economic situation of the entity by users of financial statements.