Page 29 - Accountancy_F5

Since there are many users of accounting have been used over time are; consistency,
information and their interests are not full disclosure, materiality and conservatism.
similar, it is important that, the information The following sections describe further the
provided is uniform and contains figures, different types of fundamental principles
which all can generally agree on. As these of accounting and how they affect the
users look at the information from different preparation of books of accounts.
FOR ONLINE READING ONLY
businesses and over different periods
of time, they need some assurance that, Accounting conventions
the information provided is relevant and Accounting conventions refer to the
is faithfully represented. To achieve this, common practices which are universally
LANGUAGE EDITING
financial statements need to be prepared followed when recording and presenting
using similar principles across businesses accounting information of the business
and over time. entity.

By observing the same basic principles, Consistency
preparers of financial statements achieve This concept holds that, when a business
both uniformity and consistency in the selects a particular method to account for
structure and quality of the presented specific items, then it should continue to use
financial statements. These aspects are that method even in subsequent accounting
critically important in making comparison periods unless conditions warrant a change.
on the financial performance and financial If, for some unavoidable reasons the method
position of the business across time and has to be changed, there should be a distinct
with other similar businesses in the industry. note in the financial statements of the
Fundamental principles of accounting can business giving relevant explanations so
be divided into two classes, accounting that users are informed of the reasons for
concepts and conventions. One of the such changes. This is important to enhance
important differences with accounting comparability of accounting figures over
concepts is that, accounting conventions time in a meaningful manner.
are followed like customs and traditions in Materiality
a society. They have been developed over Information is considered to be material if
the years, and adopted either by general its omission or misstatement could influence
agreement or common consent among the economic decisions of users taken on the
accountants. In other words, accounting basis of the financial statements. Materiality
conventions have evolved through regular therefore, relates to the significance of
and consistent practice over the years to transactions, balances and errors contained
achieve wider acceptance and influences in the financial statements. Materiality
in the recording of books of accounts. Four defines the threshold or cut-off point after
important accounting conventions, which which financial information becomes

Student’s Book Form Five
16

23/06/2024 17:34
ACCOUNTANCY_DUMMY_23 JUNE.indd 16
ACCOUNTANCY_DUMMY_23 JUNE.indd 16 23/06/2024 17:34