Although the accounting treatments and provisions regarding presentations of different important transactions in the financial statements is dealt separate accounting standards. However, in the absence of any specific guidance, provisions of IASB Framework and IAS 1 provides overall guidance for preparation and presentation of financial statements.
Before we discuss both documents lets clear out few things so that we don’t get confuse later.
- IASB Framework provides general guidance about the preparation and presentation of financial statements whereas any accounting standard provides provisions which are more than guidance and are must to be followed. That is why in the framework it has been written that in case there is a conflict between the provisions of framework and standards then the provisions of standards will overrule.
- The words of underlying assumption is used only in IASB Framework. That is why many accountants take only the assumptions stated in the framework as fundamental accounting assumptions regarding financial statements. However, considerable number of accountants and auditors believe that features of financial statements as stated under IAS 1 are an extension of underlying assumptions and thus count them in assumptions as well.
But I prefer that we go with the first approach as sometimes it is better not to assume about anything and stick with what documents say. So this is what I consider to be the correct approach:
- The underlying assumptions are the assumptions as stated under IASB Framework.
- The features of financial statements as stated under IAS 1 are better to be called as fundamental principles of preparation and presentation of financial statements.
In other words underlying assumptions are one of the fundamental principles but not all of the fundamental principles are underlying assumptions. Read on the get more clear on this matter.
According to IASB Framework the underlying assumptions (which can also be called as fundamental assumptions for preparation and presentation of financial statements) are:
- Going Concern
- Accrual Basis of accounting
According to IAS 1 general features of financial statements (which can also be called as fundamental principles for preparation and presentation of financial statements) are:
- Fair presentation and compliance with IFRSs
- Going concern
- Accrual basis of accounting
- Materiality and aggregation
- Reporting annually
- Disclosure of comparative information
- Consistency of presentation
As you can see that underlying assumptions form part of the fundamental principles but not all of the principles are underlying assumptions as given in framework.