all material information should be disclosed in the accounting statement. This is important because the management is different from the owners in most of the organisations. The disclosure should be full, fair and adequate so that the users of the financial statements can make correct assessment about the financial position and performance of the business unit. (xiii) Convention of materiality According to this convention, financial statements should disclose all material items which might influence the decisions of the users of financial statements.
Hence, any item which is not significant and is not relevant to the users need not be disclosed in the financial statements. This principle is basically an exception to the full disclosure principle. The term materiality is subjective in nature. Materiality depends on the amount involved in the transaction, size of the business, nature of information, requirements of the person making decision, etc.
An item material to one person may be immaterial to another person. (xiv) Convention of conservatism or prudence It is a policy of caution or playing safe. While recording the business transactions one has to anticipate no income but provide for all possible losses. For example, the closing stock in the factory is valued at ` , at cost price and ` , at its realisable price.
But while recording in the books the value of ` , will be considered being the lower of the two. According to realisation concept, any increase in value is not to be accounted unless it has materialised. The conservatism convention puts further restriction on it. Any unrealised gain is not to be anticipated but provision can be made against all possible losses.
Going concern concept, Convention of consistency and Accrual concept are considered as fundamental accounting assumptions. . Accounting Standards (AS) Student activity Think: In your school, there are some basic rules to be followed by every student. What are they?
What will happen if there is no such rule? Accounting Standards provide the framework and norms to be followed in accounting so that the financial statements of different enterprises become comparable. It is necessary to standardise the