MEANING AND FEATURES OF ACCOUNTING PRINCIPLES
For searching the goals of the accounting profession and for expanding
knowledge in this field, a logical and useful set of principles and procedures
are to be developed. We know that while driving our vehicles, follow
a standard traffic rules. Without adhering traffic rules, there would be
much chaos on the road. Similarly, some principles apply to accounting.
Thus, the accounting profession cannot reach its goals in the absence of a
set rules to guide the efforts of accountants and auditors. The rules and
principles of accounting are commonly referred to as the conceptual framework
of accounting. Accounting principles have been defined by the Canadian Institute of
Chartered Accountants as “The body of doctrines commonly associated with
the theory and procedure of accounting serving as an explanation of current
practices and as a guide for the selection of conventions or procedures
where alternatives exists. Rules governing the formation of accounting axioms
and the principles derived from them have arisen from common experience,
historical precedent statements by individuals and professional bodies
and regulations of Governmental agencies”. According to Hendriksen
(1997), Accounting theory may be defined as logical reasoning in the form
of a set of broad principles that (i) provide a general frame of reference by
which accounting practice can be evaluated, and (ii) guide the development
of new practices and procedures. Theory may also be used to explain existing
practices to obtain a better understanding of them. But the most important
goal of accounting theory should be to provide a coherent set of logical principles that form the general frame of reference for the evaluation
and development of sound accounting practices.
The American Institute of Certified Public Accountants (AICPA) has
advocated the use of the word” Principle” in the sense in which it means
“rule of action”. It discuses the generally accepted accounting principles
as follows :
Financial statements are the product of a process in which a large
volume of data about aspects of the economic activities of an enterprise
are accumulated, analysed and reported. This process should be carried out
in conformity with generally accepted accounting principles. These principles
represent the most current consensus about how accounting information
should be recorded, what information should be disclosed, how it
should be disclosed, and which financial statement should be prepared. Thus,
generally accepted principles and standards provide a common financial
language to enable informed users to read and interpret financial statements.
Generally accepted accounting principles encompass the conventions,
rules and procedures necessary to define accepted accounting practice at a
particular time....... generally accepted accounting principles include not
only broad guidelines of general application, but also detailed practices
and procedures (Source : AICPA Statement of the Accounting Principles
Board No. 4, “Basic Concepts and Accounting Principles underlying Financial
Statements of Business Enterprises “, October, 1970, pp 54-55)
According to ‘Dictionary of Accounting’ prepared by Prof. P.N. Abroal,
“Accounting standards refer to accounting rules and procedures which are relating
to measurement, valuation and disclosure prepared by such bodies as the
Accounting Standards Committee (ASC) of a particular country”. Thus, we may
define Accounting Principles as those rules of action or conduct which are adopted by the accountants universally while recording accounting transactions.
Accounting principles are man-made. They are accepted because they are believed
to be useful. The general acceptance of an accounting principle usually
depends on how well it meets the following three basic norms :
a) Usefulness b) Objectiveness, and c) Feasibility
A principle is useful to the extent that it results in meaningful or
relevant information to those who need to know about a certain business. In
other words, an accounting rule, which does not increase the utility of the
records to its readers, is not accepted as an accounting principles. A principle
is objective to the extent that the information is not influenced by
the personal bias or Judgement of those who furnished it. Accounting principle
is said to be objective when it is solidly supported by facts. Objectivity
means reliability which also means that the accuracy of the information
reported can be verified. Accounting principles should be such as are practicable.
A principle is feasible when it can be implemented without undue
difficulty or cost. Although these three features are generally found in accounting
principles, an optimum balance of three is struck in some cases
for adopting a particular rule as an accounting principle. For example, the
principle of making the provision for doubtful debts is found on feasibility
and usefulness though it is less objective. This is because of the fact that
such provisions are not supported by any outside evidence.
For searching the goals of the accounting profession and for expanding
knowledge in this field, a logical and useful set of principles and procedures
are to be developed. We know that while driving our vehicles, follow
a standard traffic rules. Without adhering traffic rules, there would be
much chaos on the road. Similarly, some principles apply to accounting.
Thus, the accounting profession cannot reach its goals in the absence of a
set rules to guide the efforts of accountants and auditors. The rules and
principles of accounting are commonly referred to as the conceptual framework
of accounting. Accounting principles have been defined by the Canadian Institute of
Chartered Accountants as “The body of doctrines commonly associated with
the theory and procedure of accounting serving as an explanation of current
practices and as a guide for the selection of conventions or procedures
where alternatives exists. Rules governing the formation of accounting axioms
and the principles derived from them have arisen from common experience,
historical precedent statements by individuals and professional bodies
and regulations of Governmental agencies”. According to Hendriksen
(1997), Accounting theory may be defined as logical reasoning in the form
of a set of broad principles that (i) provide a general frame of reference by
which accounting practice can be evaluated, and (ii) guide the development
of new practices and procedures. Theory may also be used to explain existing
practices to obtain a better understanding of them. But the most important
goal of accounting theory should be to provide a coherent set of logical principles that form the general frame of reference for the evaluation
and development of sound accounting practices.
The American Institute of Certified Public Accountants (AICPA) has
advocated the use of the word” Principle” in the sense in which it means
“rule of action”. It discuses the generally accepted accounting principles
as follows :
Financial statements are the product of a process in which a large
volume of data about aspects of the economic activities of an enterprise
are accumulated, analysed and reported. This process should be carried out
in conformity with generally accepted accounting principles. These principles
represent the most current consensus about how accounting information
should be recorded, what information should be disclosed, how it
should be disclosed, and which financial statement should be prepared. Thus,
generally accepted principles and standards provide a common financial
language to enable informed users to read and interpret financial statements.
Generally accepted accounting principles encompass the conventions,
rules and procedures necessary to define accepted accounting practice at a
particular time....... generally accepted accounting principles include not
only broad guidelines of general application, but also detailed practices
and procedures (Source : AICPA Statement of the Accounting Principles
Board No. 4, “Basic Concepts and Accounting Principles underlying Financial
Statements of Business Enterprises “, October, 1970, pp 54-55)
According to ‘Dictionary of Accounting’ prepared by Prof. P.N. Abroal,
“Accounting standards refer to accounting rules and procedures which are relating
to measurement, valuation and disclosure prepared by such bodies as the
Accounting Standards Committee (ASC) of a particular country”. Thus, we may
define Accounting Principles as those rules of action or conduct which are adopted by the accountants universally while recording accounting transactions.
Accounting principles are man-made. They are accepted because they are believed
to be useful. The general acceptance of an accounting principle usually
depends on how well it meets the following three basic norms :
a) Usefulness b) Objectiveness, and c) Feasibility
A principle is useful to the extent that it results in meaningful or
relevant information to those who need to know about a certain business. In
other words, an accounting rule, which does not increase the utility of the
records to its readers, is not accepted as an accounting principles. A principle
is objective to the extent that the information is not influenced by
the personal bias or Judgement of those who furnished it. Accounting principle
is said to be objective when it is solidly supported by facts. Objectivity
means reliability which also means that the accuracy of the information
reported can be verified. Accounting principles should be such as are practicable.
A principle is feasible when it can be implemented without undue
difficulty or cost. Although these three features are generally found in accounting
principles, an optimum balance of three is struck in some cases
for adopting a particular rule as an accounting principle. For example, the
principle of making the provision for doubtful debts is found on feasibility
and usefulness though it is less objective. This is because of the fact that
such provisions are not supported by any outside evidence.
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