Account Assumptions & Qualitative Characteristics

Accounting Entity Assumption

The records of assets, liabilities and business activities of the entity are kept completely separate from those of the owner of the entity as well as from those of other entities.

Accural Basis Assumption

Revenue is recognised in the period it is earned and expenses are recognised in the period they are incurred or consumed so profit can be calculated.

Going Concern Assumption

Financial reports are prepared on the assumption that the existing entity will continue to operate into the future. It is assumed that the entity will not be wound up in the near future but will continue its activities.

Period Assumption

Reports are prepared for a particular period of time, such as a month or a year, in order to obtain comparability of results.

Relevance

Relevant information is that which directly assists the user in making decisions. Relevant financial information is related to making an economic decision and directly assists the user in forming predictions about outcomes of past, present or future events.

Faithful Representation

The information reported must be a faithful representation of the real-world economic event it represents. The user is assured that the information presented is complete, free from material error and neutral (without bias).

Comparability

Enables the user to identify and understand similarities and differences between items.

Understandability

Requires financial information to be comprehensible to users with reasonable knowledge of business and economic activities.

Verifiability

The ability to ensure that different knowledgeable and independent observers can reach a consensus that a particular depiction of an event is faithfully represented.

Timeliness

Information is available to decision-makers in time to be capable of influence of decisions.