- Encourage improved comprehension of financial statements.
- Revealing significant accounting principles.
- make it easier to compare the financial statements of the same firm for different periods and those of different enterprises for the same period.
Accounting Policies are certain accounting principles and the way of putting them into practice that businesses employ in order to prepare and display financial statements. Accounting professionals are forced to choose from a variety of options for documenting and releasing information in certain sectors where there are many accounting treatment methods.
Areas where various firms may implement different accounting policies
- Methods of depreciation, depletion and amortization
- Conversion or translation of foreign currency items
- Valuation of inventories
- Treatment of goodwill
- Valuation of investments
- Treatment of retirement benefits
- Recognition of profit on long-term contracts
- Valuation of fixed assets
- Treatment of contingent liabilities
- Treatment of expenditure during construction.
Fundamental Accounting Assumption
The guiding principles in the creation and reporting of financial accounts are fundamental accounting assumptions. If nothing else is stated, it is presumed that it is followed. If they are not followed, disclosure is required.
- Going Concern: The company is typically seen as a going concern, meaning that it will likely remain open for business in the foreseeable future. It is assumed that neither a liquidation intention nor a liquidation requirement exist for the business.
- Consistency: It is presumpted that accounting principles remain constant across time.
- Accrual: Revenues and expenses are documented in the financial accounts of the periods to which they pertain and are recognized as they are earned or incurred (rather than when money is received or paid). (This Standard does not address the factors determining how expenses and revenues are matched under the accrual assumption.)