ACCOUNTING CONVENTIONS

CONSERVATISM
In the initial stages of accounting certain anticipated profits which were recorded did not materialize. This resulted in less acceptability of accounting figures by the end-users.

In other words the accountant follows the policy of Playing Safe. It means Income statement shows a lower net income, the Balance Sheet understates assets and overstates liabilities. 1/7

FULL DISCLOSURE
According to this convention accounting reports

should disclose fully and fairly the information they purport to represent. They should be honestly prepared to disclose information which is of material interest to proprietors, present and potential creditors, and investors. It is also required under the companies Act for full disclosure. 2/7

CONSISTENCY
According to this convention accounting practices should remain unchanged from one period to another. For example if stock is valued at Cost or Market price whichever is less, this principle should be followed year after year. Similarly if depreciation is charged on fixed assets according to diminishing balance method, it should be done year after year. This is necessary for the purpose of comparison. However consistency does not mean inflexibility. It does not forbid introduction of improved accounting techniques.

MATERIALITY

According to this convention the accountant should attach importance to material details

and ignore insignificant details.

4/7

ACCOUNTING STANDARDS
International Accounting Standards Committee

(IASC) came into existence on 29th June 1973 when

16 accounting bodies from nine nations (Called as founder- members) signed the agreement and

constitution for its formation. The committee has its

head quarters at London.

5/7

I A S C OBJECTIVES
The objective of the committee is to formulate and publish in the public interest their world-wide acceptance and observance. The formulation of such standards will bring uniformity in technology, approach and presentation of results. This will not only help in a correct understanding and exchange of economic and financial information but also in facilitating a smooth flow of international investment 6/7

ACCOUNTING PRINCIPLES IN INDIA

In order to bring uniformity in terminology, approach and presentation of accounting results, the Institute of Chartered Accountants of India created Accounting Standards Boards (ASB). The main function of the ASB is to formulate accounting standards so that such standards will be established by the council of the Institute of Chartered Accounts. While formulating the accounting standards, the ASB will give due consideration to the International Accounting Standards and try to integrate them to the extent possible. It will also take into consideration the applicable laws, customs, usages and the business environments prevailing in India. 7/7