Modifying Conventions

Question 1

Name the 5 modifying conventions

Answer 1

1. Conservatism
2. Industry practices
3. Substance over form
4. Application of judgment
5. Materiality

Question 2

When confronted with alternative accounting procedures, the accountant follows that which has the least favorable impact on current income

Answer 2

Conservatism

Question 3

Departure from strict compliance with GAAP may exist in some cases due to the peculiar nature of the industry in which an enterprise operates

Answer 3

Industry Practices

Question 4

The economic substance of a transaction determines the accounting treatment, even though the legal form of the transaction may indicate a different treatment

Answer 4

Substance over form

Question 5

Strict adherence to GAAP produces results that are unreasonable. A departure from GAAP may be made to render results that appear reasonable in the circumstances

Answer 5

Application of Judgment

Question 6

The accounting treatment of many items is dependent upon their resultant impact on the users’ decisions. Strict compliance with GAAP is necessary only when an item, due to its dollar size and/or nature has a significant effect on the F/S and the accompanying investor decisions

Answer 6

Materiality