Accounting Concepts and Principles

Accounting concepts and principles are such sets of principles and concepts that helps management or people responsible to prepare financial statements in preparing relevant and reliable financial statements as these concepts help in identifying, classifying, measuring and reporting business transactions and events in appropriate manner. These are sometimes referred as fundamental principles of accounting

In short, reason of having such concepts and principles, rules etc is to provide users with relevant and reliable information. To ensure this different accounting bodies around the world strive to provide a framework that helps implement these important accounting concepts and principles.

In some countries they are known as GAAPs whereas in case of International Financial Reporting Standards these concepts and principles are discussed in IASB Framework that suggests what qualitative characteristics accounting information must possess. Whatever the name is used basic aim is to provide users with quality information. These principles and concepts form the requirements of Standards issued by different accounting bodies around the world.

Irrespective of concepts and principles discussed by each accounting body, they include the following:

  • Separate entity concept / Business entity concept / Economic entity concept
  • Accruals concept
  • Going concern concept
  • Conservatism / prudence
  • Materiality
  • Monetary value / stable measuring unit assumption
  • Matching principle
  • Substance over form
  • Consistency
  • Revenue recognition principle / realisation concept
  • Full disclosure principle
  • Time interval principle
  • Historical cost concept
  • Understandability
  • True and Fair override
  • Relevance
  • Completeness
  • Neutrality / objectivity
  • Duality concept
  • Verifiability
  • Constant purchasing power concept
  • Faithful representation