What are Industry Practices?

Industry practices are those accounting issues that are unique to a specific industry, and which are used instead of normal accounting practices and reporting. For example, the financial statements of organizations will vary somewhat if they are in the gaming, insurance, medical care, or utility industries. These differences are allowed by the applicable accounting standards, as long as the departures from common practice are justifiable.

There are usually only a small number of unusual accounting practices associated with an industry. These practices are driven by the unique nature of an industry, such that following standard accounting practices would be cost-prohibitive and may also not result in financial statements that are the most representative of the operating results and financial position of a business.

Examples of Industry Practices

Here are several examples of industry practices as they pertain to accounting activities:

Ship operations. Ship owners routinely capitalize the costs incurred when a ship is in dry dock, and then depreciate these costs until the next scheduled dry dock.
Pig farming. Farm operators routinely accumulate the costs of breeding animals until they reach maturity, and then depreciate these capitalized costs starting when the animals reach maturity and continuing through their estimated lifespans.
Oil and gas development. An oil and gas producer can capitalize a broad array of costs, even if the results of specific costs were unsuccessful; these costs are then amortized using the units of production method. Thus, even investments made in the drilling of dry wells and abandoned leaseholds are capitalized.