SUBJECT: FINANCIAL ACCOUNTING! !

F3

Accounting Concepts and Qualitative Characteristics

Fair Presentation
IAS 1 - Fundamental Assumption

Financial statements should present fairly the financial position, financial performance and cash
flows of an entity.

Going Concern
IAS 1 - Fundamental Assumption

Financial statements should be prepared on the basis that the business will continue without the
necessity or intention of liquidation, or materially changing the scale of operations for the
foreseeable future.

Accruals (or Matching)

IAS 1 - Fundamental Assumption

Transactions are recognised in the financial statements in the period in which they occur rather
than in the period in which related cash is paid or received.

Consistency
IAS 1 - Fundamental Assumption

Financial statements should be prepared in a consistent manner with regard to presentation and
classification, except where there is a significant change in the nature of operations or a change is
required by an IFRS.

Prudence
IAS 1 - Extremely Important
Qualitative Characteristic

The inclusion of a degree of caution in the exercise of the judgements needed in making the
estimates required under conditions of uncertainty, such that assets or income are not overstated
and liabilities and expenses are not understated.

Materiality
IAS 1 - Extremely Important

Financial statements should include all detail that may affect the economic decisions of users.

Substance over Form

IAS 1 - Extremely Important
Qualitative Characteristic

Faithful representation of a transaction is only possible if it is accounted for according to its

substance and economic reality, not with its legal form.

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 SUBJECT: FINANCIAL ACCOUNTING! ! F3

Relevance
Principle Qualitative Characteristic

Financial statements should present information that is relevant to the decision making needs of
users.

Reliability
Principle Qualitative Characteristic

Information must be reliable to be useful, i.e free from material error and bias. The user must be
able to depend on it being a faithful representation.

Faithful Representation
Qualitative Characteristic

Information must represent faithfully the transactions it purports to represent in order to be reliable.

Neutrality
Qualitative Characteristic

Information must be free from bias to be reliable. Neutrality is lost if the financial statements are
prepared so as to influence the user to make a judgement in order to achieve a predetermined
outcome.

Completeness
Financial information must be complete, within the restrictions of materiality and cost, to be
reliable. Omission may cause information to be misleading.

Comparability
Principle Qualitative Characteristic

Users must be able the compare an entity’s financial statements through time to identify trends and
with another entity’s statements to evaluate their relative financial position, performance and
changes in financial position.

Understandability
Principle Qualitative Characteristic

Information may be difficult to understand if it is incomplete, but too much detail can also confuse
the issue.

Business Entity Concept

For accounting purposes, all entities are treated as separate from their owners.

Sources
BPP Learning Media Study Text - December 2010 Edition

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