These standards are managed by the FASB and cover such things as: The 10 principles provide the foundation for countless concrete standards and processes. This principle is similar to the Latin phrase uberrimae fidei, “utmost good faith,” used in the insurance industry. Principle of Utmost Good Faith Honesty is the best policy, and GAAP presumes that businesses and accountants are all being honest in their reporting.Principle of Materiality or Full Disclosure There must be full disclosure in financial reports.This practice is called revenue recognition. If the entry covers several time periods in one (like an upfront annual payment of a subscription), then the revenue should be split and recorded across the appropriate periods of time. Principle of Periodicity Each financial entry should accord to one single time period.Assets are considered at their historical value, rather than a disposable value. Principle of Continuity While valuing assets, it should be assumed the business will continue to operate (and not be sold on the spot, for example).Basically, don’t try to make it look more impressive. In this context, GAAP expects fact-based financial data representation that is cautious and grounded, not speculative. Principle of Prudence “Prudence” means wisdom, good judgment, common sense.Debts are left separate from assets, expenses separate from revenue. Principle of Non-Compensation The accountant shows full accounting details, both negatives and positives, without trying to compensate one with the other.Principle of Permanence of Methods Another one about consistency! The procedures used in financial reporting should be consistent, should provide a coherent picture of the business, and allow for comparison to other businesses.The accountant strives to provide an accurate depiction of a company’s financial situation. Principle of Sincerity Here’s a commitment to do a sincere, objective job.If accountants use other standards at any point in the reporting process, they’re expected to fully disclose the change and explain the reasons why. This maintains consistency and prevent errors. Accountants and business professionals commit to using the same standards throughout all reporting, from period to period. Principle of Consistency This is one of the main points. ![]()
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