Accounting Standards Flashcards
Name the Accounting Standards.
Going Concern Accruals Concept Consistency Prudence Materiality
Describe what ‘Going Concern’ is.
Going concern is the assumption that the business will continue trading for the foreseeable future; longer than one year.
A Number of adjustments has to be made if it doesn’t; like the ‘Non-Current Assets’ would no longer be considered ‘Non-Current’.
Describe what ‘Accruals Concept’ is.
The Accruals or Matching concept is the idea that we match our costs and revenues the the period they relate to. Meaning that we record transactions as the services or goods are provided, not when the payment is received.
Describe what ‘Consistency’ is.
This Concept says that we post similar items in the current period and from one accounting period to the next. This allows the business to compare how it is doing year on year.
Describe what ‘Prudence’ is.
Prudence is that concept of being skeptical about the accounts. We never overstate profits and never understate costs, and we record them when costs are probable and when revenues are definite.
Describe what ‘Materiality’ is.
Financial statements have to show true and fair view. this does not mean they have to be 100% accurate but they have to be materially correct. Omissions and misstatements are material if they could influence decisions made by the users.
Describe what ‘Qualitative Characteristics’ are.
Qualitative characteristics are the principles which have to be followed when creating financial statements to ensure that they are useful and are able to help decision making of the users.
Name the ‘Qualitative Characteristics’.
There are two; ‘Relevance’ and ‘Faithful Representation’.
Describe ‘Relevance’.
Relevant information is capable of making a difference in the decisions made by the users. It is capable of making a difference if it has predictive value, confirmatory value or both. Those two things are interrelated.
Describe ‘Faithful Representation’.
Financial statements represent economic performance and position in words and numbers. For financial information to be useful, it must not only be relevant but it must also be represent faithfully the events to which it relates to. This is to maximize the underlying completeness , neutrally and freedom from error.
Name the ‘enhancing characteristics’.
Comparability
Verifiablity
Timeliness
Understandability
Describe ‘Comparability’.
Financial information is more useful, if the information can be compared with the information of other businesses, that’s why there is a set format which is used for financial statements.
Describe ‘Verifiability’.
Verifiablity helps the assure users that the information faithfully represents the economic reality of the transaction. This means that different knowledgeable and independent observers could reach an agreement that a particular treatment of an item if faithfully represented.
