Accounting
Concept and Principles
Accounting Concepts and Principles are
a set of broad conventions that have been devised to provide a basic framework
for financial reporting. As financial reporting involves significant
professional judgments by accountants, these concepts and principles ensure
that the users of financial information are not mislead by the adoption of
accounting policies and practices that go against the spirit of the accountancy
profession. Accountants must therefore actively consider whether the accounting
treatments adopted are consistent with the accounting concepts and principles.
In order to ensure application of the
accounting concepts and principles, major accounting standard-setting bodies
have incorporated them into their reporting frameworks such as the IASB
Framework.
Following is a list of the major accounting
concepts and principles:
Relevance Reliability MatchingConcept Timeliness Neutrality Faithful Representation Prudence Completeness Single Economic Entity Concept Money Measurement Concept Comparability/Consistency Understand ability Materiality Going Concern Accruals Business Entity Substance over Form Realization Concept Duality Concept
In
case where application of one accounting concept or principle leads to a
conflict with another accounting concept or principle, accountants must
consider what is best for the users of the financial information. An example of
such a case would be the trade off between relevance and reliability.
Information is more relevant if it is disclosed timely. However, it may take
more time to gather reliable information. Whether reliability of information
may be compromised to ensure relevance of information is a matter of judgment
that ought to be considered in the interest of the users of the financial
information.formation.
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