HIGHER ACCOUNTING

Concepts and Conventions

Statements of Principle

Relevant – to stakeholders of accounting information

Reliable – complete and free from deliberate bias or error

Comparable – enables users to compare results of one business with another

Understandable – understood by the users of the accounting information

Statements of Standard Accounting Practice (SSAPs) Issued by the Accounting Standards Board

These are rules developed, written and enforced by the accountancy profession

To ensure consistency and comparability between business enterprises

Objectives of Standards

To narrow the discretion in accounting practices in specific areas such as: Valuation of Depreciation Stock Valuation

The aim to ensure that the accounting statements give a ‘true and fair view’ of the business enterprise

SSAP 2

Four basic assumptions that underlie all accounting statements: Going Concern Accruals/Matching Consistency Prudence/Conservatism

Going Concern

It is assumed that the firm is going to continue in operation for an indefinite period of time: Assets are shown at cost less depreciation

to date as they are not for resale but to be used by the business until their working life is over

Accruals/Matching

Allowance has to be made for amounts due and amounts prepaid at the beginning and end of the financial period

Consistency

To enable comparison over consecutive years and between firms, accounting statements must always be prepared using the same bases eg Method of depreciation Method of valuing stock

Prudence/Conservatism

Where there is the choice between one of two figures, the one which will understate rather than overstate profit should be used.

All losses should be recorded in the books, but profits should not be anticipated

Other Concepts and Conventions Cost Materiality Business Entity Money Measurement Realisation Dual Aspect