higher accounting concepts and conventions. statements of principle relevant – to stakeholders of...
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HIGHER ACCOUNTING
Concepts and Conventions
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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
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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
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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
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SSAP 2
Four basic assumptions that underlie all accounting statements: Going Concern Accruals/Matching Consistency Prudence/Conservatism
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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
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Accruals/Matching
Allowance has to be made for amounts due and amounts prepaid at the beginning and end of the financial period
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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
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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
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Other Concepts and Conventions Cost Materiality Business Entity Money Measurement Realisation Dual Aspect