diff --git a/src/libs/actions/OnyxDerived/configs/reportAttributes.ts b/src/libs/actions/OnyxDerived/configs/reportAttributes.ts
index 4c8c7791d46ff..f361b006314d1 100644
--- a/src/libs/actions/OnyxDerived/configs/reportAttributes.ts
+++ b/src/libs/actions/OnyxDerived/configs/reportAttributes.ts
@@ -26,6 +26,23 @@ const prepareReportKeys = (keys: string[]) => {
     ];
 };
 
+const hasPolicyRelevantFieldChanged = (prev: Policy | null | undefined, next: Policy | null | undefined): boolean => {
+    if (!prev && !next) {
+        return false;
+    }
+    if (!prev || !next) {
+        return true;
+    }
+    return (
+        prev.type !== next.type ||
+        prev.approvalMode !== next.approvalMode ||
+        prev.reimbursementChoice !== next.reimbursementChoice ||
+        prev.autoReimbursementLimit !== next.autoReimbursementLimit ||
+        prev.role !== next.role ||
+        prev.autoReimbursement?.limit !== next.autoReimbursement?.limit
+    );
+};
+
 const checkDisplayNamesChanged = (personalDetails: OnyxEntry<PersonalDetailsList>) => {
     if (!personalDetails) {
         return false;
@@ -97,9 +114,25 @@ export default createOnyxDerivedValueConfig({
         let needsFullRecompute = (hasKeyTriggeredCompute(ONYXKEYS.NVP_PREFERRED_LOCALE, sourceValues) && preferredLocale !== currentValue?.locale) || displayNamesChanged;
 
         // if policies are loaded first time, we need to recompute all report attributes to get correct action badge in LHN, such as Approve because it depends on policy's type (see canApproveIOU function)
+        const policyChangedReportKeys: string[] = [];
         if (hasKeyTriggeredCompute(ONYXKEYS.COLLECTION.POLICY, sourceValues)) {
             if (Object.keys(previousPolicies ?? {}).length === 0 && Object.keys(policies ?? {}).length > 0) {
                 needsFullRecompute = true;
+            } else if (!needsFullRecompute) {
+                // Policy updated — only recompute reports whose relevant fields actually changed
+                const changedPolicyIDs = new Set<string>();
+                for (const key of Object.keys(sourceValues?.[ONYXKEYS.COLLECTION.POLICY] ?? {})) {
+                    if (hasPolicyRelevantFieldChanged(previousPolicies?.[key], policies?.[key])) {
+                        changedPolicyIDs.add(key.replace(ONYXKEYS.COLLECTION.POLICY, ''));
+                    }
+                }
+                if (changedPolicyIDs.size > 0) {
+                    for (const [reportKey, report] of Object.entries(reports ?? {})) {
+                        if (report?.policyID && changedPolicyIDs.has(report.policyID)) {
+                            policyChangedReportKeys.push(reportKey);
+                        }
+                    }
+                }
             }
             previousPolicies = policies;
         }
@@ -146,6 +179,7 @@ export default createOnyxDerivedValueConfig({
             ...Object.keys(reportNameValuePairsUpdates),
             ...Object.keys(reportViolationsUpdates),
             ...Array.from(reportUpdatesRelatedToReportActions),
+            ...policyChangedReportKeys,
         ];
 
         if (useIncrementalUpdates) {
@@ -320,3 +354,5 @@ export default createOnyxDerivedValueConfig({
         };
     },
 });
+
+export {hasPolicyRelevantFieldChanged};
diff --git a/tests/unit/reportAttributesTest.ts b/tests/unit/reportAttributesTest.ts
new file mode 100644
index 0000000000000..ad5831ddb7799
--- /dev/null
+++ b/tests/unit/reportAttributesTest.ts
@@ -0,0 +1,254 @@
+import type {OnyxCollection} from 'react-native-onyx';
+import type reportAttributesModuleDefault from '@userActions/OnyxDerived/configs/reportAttributes';
+import {hasPolicyRelevantFieldChanged} from '@userActions/OnyxDerived/configs/reportAttributes';
+import CONST from '@src/CONST';
+import ONYXKEYS from '@src/ONYXKEYS';
+import type {Policy, Report, ReportAttributesDerivedValue} from '@src/types/onyx';
+
+type ReportAttributesConfig = typeof reportAttributesModuleDefault;
+
+jest.mock('@libs/ReportUtils', () => ({
+    generateReportAttributes: jest.fn(() => ({
+        hasAnyViolations: false,
+        requiresAttention: false,
+        reportErrors: {},
+        oneTransactionThreadReportID: undefined,
+        actionBadge: undefined,
+        actionTargetReportActionID: undefined,
+    })),
+    generateIsEmptyReport: jest.fn(() => false),
+    hasVisibleReportFieldViolations: jest.fn(() => false),
+    isArchivedReport: jest.fn(() => false),
+    isValidReport: jest.fn(() => true),
+}));
+
+jest.mock('@libs/SidebarUtils', () => ({
+    // eslint-disable-next-line @typescript-eslint/naming-convention -- Required because Jest mock objects use __esModule which violates the naming convention rule
+    __esModule: true,
+    default: {
+        getReasonAndReportActionThatHasRedBrickRoad: jest.fn(() => undefined),
+    },
+}));
+
+jest.mock('@libs/ReportNameUtils', () => ({
+    computeReportName: jest.fn(() => 'Test Report'),
+}));
+
+const basePolicy: Policy = {
+    id: 'policy1',
+    name: 'Test Policy',
+    type: CONST.POLICY.TYPE.CORPORATE,
+    outputCurrency: CONST.CURRENCY.USD,
+    role: CONST.POLICY.ROLE.ADMIN,
+    approvalMode: CONST.POLICY.APPROVAL_MODE.BASIC,
+    reimbursementChoice: CONST.POLICY.REIMBURSEMENT_CHOICES.REIMBURSEMENT_YES,
+    autoReimbursementLimit: 1000,
+    autoReimbursement: {limit: 500},
+} as unknown as Policy;
+
+describe('hasPolicyRelevantFieldChanged', () => {
+    describe('null / undefined edge cases', () => {
+        it('returns false when both are null', () => {
+            expect(hasPolicyRelevantFieldChanged(null, null)).toBe(false);
+        });
+
+        it('returns false when both are undefined', () => {
+            expect(hasPolicyRelevantFieldChanged(undefined, undefined)).toBe(false);
+        });
+
+        it('returns false when both are null/undefined mix', () => {
+            expect(hasPolicyRelevantFieldChanged(null, undefined)).toBe(false);
+            expect(hasPolicyRelevantFieldChanged(undefined, null)).toBe(false);
+        });
+
+        it('returns true when prev is null and next has a policy', () => {
+            expect(hasPolicyRelevantFieldChanged(null, basePolicy)).toBe(true);
+        });
+
+        it('returns true when next is null and prev had a policy', () => {
+            expect(hasPolicyRelevantFieldChanged(basePolicy, null)).toBe(true);
+        });
+    });
+
+    describe('identical policies', () => {
+        it('returns false when all tracked fields are the same', () => {
+            const copy = {...basePolicy};
+            expect(hasPolicyRelevantFieldChanged(basePolicy, copy)).toBe(false);
+        });
+
+        it('returns false when only a non-tracked field changes', () => {
+            const updated = {...basePolicy, name: 'Updated Name'} as unknown as Policy;
+            expect(hasPolicyRelevantFieldChanged(basePolicy, updated)).toBe(false);
+        });
+    });
+
+    describe('tracked field changes', () => {
+        it('returns true when type changes', () => {
+            const updated = {...basePolicy, type: CONST.POLICY.TYPE.TEAM} as unknown as Policy;
+            expect(hasPolicyRelevantFieldChanged(basePolicy, updated)).toBe(true);
+        });
+
+        it('returns true when approvalMode changes', () => {
+            const updated = {...basePolicy, approvalMode: CONST.POLICY.APPROVAL_MODE.OPTIONAL} as unknown as Policy;
+            expect(hasPolicyRelevantFieldChanged(basePolicy, updated)).toBe(true);
+        });
+
+        it('returns true when reimbursementChoice changes', () => {
+            const updated = {...basePolicy, reimbursementChoice: CONST.POLICY.REIMBURSEMENT_CHOICES.REIMBURSEMENT_NO} as unknown as Policy;
+            expect(hasPolicyRelevantFieldChanged(basePolicy, updated)).toBe(true);
+        });
+
+        it('returns true when autoReimbursementLimit changes', () => {
+            const updated = {...basePolicy, autoReimbursementLimit: 2000} as unknown as Policy;
+            expect(hasPolicyRelevantFieldChanged(basePolicy, updated)).toBe(true);
+        });
+
+        it('returns true when role changes', () => {
+            const updated = {...basePolicy, role: CONST.POLICY.ROLE.USER} as unknown as Policy;
+            expect(hasPolicyRelevantFieldChanged(basePolicy, updated)).toBe(true);
+        });
+
+        it('returns true when autoReimbursement.limit changes', () => {
+            const updated = {...basePolicy, autoReimbursement: {limit: 999}} as unknown as Policy;
+            expect(hasPolicyRelevantFieldChanged(basePolicy, updated)).toBe(true);
+        });
+
+        it('returns true when autoReimbursement goes from defined to undefined', () => {
+            const updated = {...basePolicy, autoReimbursement: undefined} as unknown as Policy;
+            expect(hasPolicyRelevantFieldChanged(basePolicy, updated)).toBe(true);
+        });
+
+        it('returns true when autoReimbursement goes from undefined to defined', () => {
+            const withoutAutoReimburse = {...basePolicy, autoReimbursement: undefined} as unknown as Policy;
+            expect(hasPolicyRelevantFieldChanged(withoutAutoReimburse, basePolicy)).toBe(true);
+        });
+    });
+});
+
+describe('reportAttributes compute — policy change code flow', () => {
+    let config: ReportAttributesConfig;
+
+    const report1 = {
+        reportID: 'r1',
+        policyID: 'policy1',
+        chatReportID: undefined,
+        participants: {},
+    } as unknown as Report;
+
+    const report2 = {
+        reportID: 'r2',
+        policyID: 'policy2',
+        chatReportID: undefined,
+        participants: {},
+    } as unknown as Report;
+
+    const reports: OnyxCollection<Report> = {
+        [`${ONYXKEYS.COLLECTION.REPORT}r1`]: report1,
+        [`${ONYXKEYS.COLLECTION.REPORT}r2`]: report2,
+    };
+
+    const policy1 = {...basePolicy, id: 'policy1'} as unknown as Policy;
+    const policy2 = {...basePolicy, id: 'policy2'} as unknown as Policy;
+
+    const policies: OnyxCollection<Policy> = {
+        [`${ONYXKEYS.COLLECTION.POLICY}policy1`]: policy1,
+        [`${ONYXKEYS.COLLECTION.POLICY}policy2`]: policy2,
+    };
+
+    beforeEach(() => {
+        jest.resetModules();
+        // eslint-disable-next-line @typescript-eslint/no-require-imports, @typescript-eslint/no-unsafe-member-access -- Dynamic require is needed here because jest.resetModules() clears the module registry and we need a fresh import
+        config = (require('@userActions/OnyxDerived/configs/reportAttributes') as {default: ReportAttributesConfig}).default;
+    });
+
+    const buildArgs = (overridePolicies?: OnyxCollection<Policy>) =>
+        [
+            reports, // reports
+            null, // preferredLocale
+            null, // transactionViolations
+            null, // reportActions
+            null, // reportNameValuePairs
+            null, // transactions
+            null, // personalDetails
+            null, // session
+            overridePolicies ?? policies, // policies
+            null, // policyTags
+            null, // reportViolations
+            null, // reportMetadata
+        ] as unknown as Parameters<ReportAttributesConfig['compute']>[0];
+
+    it('triggers full recompute when policies are loaded for the first time', () => {
+        const result = config.compute(buildArgs(), {
+            currentValue: undefined,
+            sourceValues: {[ONYXKEYS.COLLECTION.POLICY]: policies as never},
+        });
+
+        expect(result?.reports).toHaveProperty('r1');
+        expect(result?.reports).toHaveProperty('r2');
+    });
+
+    it('only recomputes reports for the changed policy when a tracked field changes', () => {
+        // Seed previousPolicies by doing an initial compute
+        config.compute(buildArgs(), {
+            currentValue: undefined,
+            sourceValues: {[ONYXKEYS.COLLECTION.POLICY]: policies as never},
+        });
+
+        const policy1Changed = {...policy1, approvalMode: CONST.POLICY.APPROVAL_MODE.OPTIONAL} as unknown as Policy;
+        const updatedPolicies: OnyxCollection<Policy> = {
+            ...policies,
+            [`${ONYXKEYS.COLLECTION.POLICY}policy1`]: policy1Changed,
+        };
+
+        const existingValue: ReportAttributesDerivedValue = {
+            reports: {
+                r1: {reportName: 'Old Name 1', isEmpty: false, brickRoadStatus: undefined, requiresAttention: false, reportErrors: {}},
+                r2: {reportName: 'Old Name 2', isEmpty: false, brickRoadStatus: undefined, requiresAttention: false, reportErrors: {}},
+            },
+            locale: null,
+        };
+
+        const computeReportName = (jest.requireMock('@libs/ReportNameUtils') as unknown as {computeReportName: jest.Mock}).computeReportName;
+        computeReportName.mockReturnValue('New Name');
+
+        const result = config.compute(buildArgs(updatedPolicies), {
+            currentValue: existingValue,
+            sourceValues: {[ONYXKEYS.COLLECTION.POLICY]: {[`${ONYXKEYS.COLLECTION.POLICY}policy1`]: policy1Changed} as never},
+        });
+
+        // r1 (policy1 changed) should be recomputed with new name
+        expect(result?.reports.r1?.reportName).toBe('New Name');
+        // r2 (policy2 unchanged) should keep its value from currentValue
+        expect(result?.reports.r2?.reportName).toBe('Old Name 2');
+    });
+
+    it('skips recompute when a non-tracked policy field changes', () => {
+        // Seed previousPolicies
+        config.compute(buildArgs(), {
+            currentValue: undefined,
+            sourceValues: {[ONYXKEYS.COLLECTION.POLICY]: policies as never},
+        });
+
+        const policy1WithNameChange = {...policy1, name: 'New Policy Name'} as unknown as Policy;
+        const updatedPolicies: OnyxCollection<Policy> = {
+            ...policies,
+            [`${ONYXKEYS.COLLECTION.POLICY}policy1`]: policy1WithNameChange,
+        };
+
+        const existingValue: ReportAttributesDerivedValue = {
+            reports: {
+                r1: {reportName: 'Existing r1', isEmpty: false, brickRoadStatus: undefined, requiresAttention: false, reportErrors: {}},
+                r2: {reportName: 'Existing r2', isEmpty: false, brickRoadStatus: undefined, requiresAttention: false, reportErrors: {}},
+            },
+            locale: null,
+        };
+
+        const result = config.compute(buildArgs(updatedPolicies), {
+            currentValue: existingValue,
+            sourceValues: {[ONYXKEYS.COLLECTION.POLICY]: {[`${ONYXKEYS.COLLECTION.POLICY}policy1`]: policy1WithNameChange} as never},
+        });
+
+        // No tracked fields changed → return currentValue unchanged
+        expect(result).toEqual(existingValue);
+    });
+});