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 To make transparent and fair of the Accounting
and the financial reporting of the company and
easily understandable to ordinary people.
 The Generally Accepted Accounting Principles is
necessary for the accounting rules and the
standardizing the reporting of financial
statement and the cash flow statement for all
the companies.
Generally accepted accounting principles (GAAP) are
the minimum standard and uniform guidelines for
the accounting and reporting which establishes
proper classification and measurement criteria of
financial reporting and provides a better picture
when the financial reports of different companies are  The financial statements prepared under GAAP are
intended to show the economic reality.
compared by the investors.
In simple words, it is defined as the collection
of commonly used and followed accounting rules and
 Without these principles, there are chances of
procedures for the Financial reporting of a
fraudulent cases in Accounting and financial
company. GAAP describes us about the accounting
reporting. Thus affecting the interest of the
concepts and the principles to be followed while
Investors and the creditors in the market.
preparing a financial statement of a company or a
 Without Generally Accepted Accounting Principles,
companies would be free to decide themselves what
financial information to report and how to report
it, which will be very difficult for the investors
and creditors who have stake or shares in that
 It promotes the interest of the Investors,
Shareholders, and Creditors in the market.
 By
maintained and the overall performance can be
 Identifying the areas that need improvement and
required modifications for the better performance of
the company.
 The financial reports which are made using the GAAP
help to maintain investor’s trust and interest in
investments of that company;
 Complying with GAAP gives the guarantee to anyone
who wants to invest in that company.
 With the help of the GAAP report, one can easily
understand the financial statements and can also
compare easily with another.
 Generally Accepted Accounting Principle, reports it
is easy to find out the profit, loss, expenses,
investment, income, and revenues of the company.
 Generally Accepted Accounting Principles reduce
risks and avoids fraud cases by monitoring them
1 – The Business as a single Entity Principle
A business is a separate entity in terms of the
law. All its activities are treated separately from
that of its owners. In terms of accounting, the
business is independent, and the owners are
2 – The Specific Currency Principle
A currency is specified for the reporting of
financial statements. In India, we deal with Indian
Rupee. Hence it should be treated as INR for the
money specific. In the United States, they
economically deal with the US dollar, and their
financial reporting will be mentioned in USD.
Since, we are in the Philippines, we use Philippine
Peso (Php).
3 – Time period Specific Principle
Financial statements pertain to a specific period
i.e., end time and start time. Balance sheets are
also reported on a particular date, like monthly,
quarterly, half-yearly, and annually.
4 – The Cost Principle
In accounting, “Cost” refers to the amount spent
8 – Matching Principle
on obtaining the goods or services. Hence for this,
the amounts shown in the financial statements also
This Matching Principle requires companies to use
referred to as the Historical cost amounts.
the accrual basis of accounting. The matching
principle requires that expenses should be matched
5 – The full disclosure Principle
with the revenues.
The Full disclosure principle states that a company
should disclose all the financial statements fully.
It is vital for an investor or the lender to know
about the significant account policies. A company
generally lists its accounting policies as the
first note to its financial statements.
6 – The Recognition Principle
9 – The Principle of materiality
This Principle generally states about the
adjustment of the very minute errors, that is,
while maintaining accounting reports, there could
be some small errors like $5 error which is not
matching, here this can be used and adjusted
This revenue recognition principle states that the
10 – The Principle of Conservative
companies should reveal the income and expenses of
the company in that period where they have
Conservative Accounting Principle should be adopted
by all companies wherein when expenses occur that
7 – The Non-Death Principle of Business are to be recorded immediately, but the income to
be recorded when actual cash flow is there. In
It is also called as Principe of continuity as for
addition to all these, the Principle of Honesty to
accounting. There should not be an end as its
be maintained.
continuing to operate until and unless any winding
up of the company.
Recognizing Revenues
 Now, what’s the prudence concept principle
is that whenever you have a situation where
have some prospective income, you should
recognize or include that in your books
Prudence Concept or Conservatism principle is a key
accounting principle that makes sure that assets and
income are not overstated and provision is made for  So, when I am preparing my financial statements,
my books of accounts or my balance sheet, or
all known expenses and losses whether the amount
profit or loss account, I will not recognize the
is known for certain or just an estimation i.e
prospective income as part of my income for the
expenses and liabilities are not understated in the
current year’s financial records because I am
books of accounting.
acting on a conservative basis.
Prudence concept is a concept that has been put in
place to ensure that the person who is making the  The idea behind this principle is not to
overstate your income unless and until you have
financial statements makes sure that the assets and
the possession for that income.
income are not overstated to make sure the company
is not overvalued. The expenses are not understated
to make sure that the company is not rightly valued.  As per the prudence concept in accounting, we
cannot overstate income. We cannot take into
account the prospective income, which may arise.
The prudence principle in accounting is many times
described using the phrase “Do not anticipate
Recognized Expenses
profits, but provide for all possible losses.”
 At the same time, the concept of prudence
principle in accounting says that you should
underestimate the expenses, which means if there is
an expectation that some expenses are likely to be  The Prudence concept makes the comparability of
incurred, you should provide it in your books of
financial information possible.
 In this case, the prudence concept in accounting
says that you should never underestimate the
expenses, and if there is a likelihood of  The prudence concept in accounting doesn’t
always necessarily consist of correct facts.
expenses, we call it a provision. We should make
a provision for expenses in your book of
 You cannot apply the prudence concept to
cultures that are outside of the IFRS or the
 The prudence concept or conservatism principle  A company may try to create provisions which are
not required that may result in the creation of
is well known and used worldwide. It gives a
some secret reserves. Disadvantages
base to the companies on which companies could
build or prepare their financial statements
 The prudence concept in accounting doesn’t
according to this principle.
always necessarily consist of correct facts.
 Prudence principle in accounting ensures that
the financial statements present the realistic  You cannot apply the prudence concept to
cultures that are outside of the IFRS or the
and fair picture of a company’s revenue and
 A company may try to create provisions which are
not required that may result in the creation of
some secret reserves.
 It helps in not overestimating as well as not
underestimating the financial risk of a company.
 It helps in the minimization of losses.
Cost Principle states that an asset should always be
recorded at original buying price or cost and not the
perceived value and therefore, any changes in the
market value of the asset should not affect how they
are represented in the balance sheet.
 Since asset value is recorded as per books, that
cost can be rallied back from the invoice or any
other means. Hence it can be easily verifiable.
 Since this is very easy to use, so it is a much
cheaper way to record the journal entries.
This is also known as the “historical cost  Since asset price will be changed over the
years, so this method is not the accurate one
principle.” Historical Cost Principle is better
as it is not showing the fair value of the asset.
suited for short term assets since their values
don’t get changed much in a short time. For a fixed
asset, to correctly record, asset value over the  This method also doesn’t show the value of
intangible assets example, goodwill, customer
years, accountants use depreciation, amortization,
value, etc. which could be a very crucial aspect
and impairment, etc.
of the asset. These intangible assets add a lot
of value of the asset over time.
 Since assets need to be recorded at cost price  If a company wants to sell its asset at that
time of selling, there can be some confusion
hence, it is very easy to use. You just need to
arise, because the market value of that asset,
enter the cost of the asset in accounting books.
at which company wants to sell, will be quite
different than the book value of the asset.
Historical Cost Principle Limitations
 This method is most suitable for short term assets.
 If an asset is highly liquid or has some market
value, then this method is not applicable. That asset
should be listed as a market value rather than
historical cost.
 The company’s financial investment accounting
should not be based on the cost principle. Instead,
its value should be changed each accounting period
based on market value.
 Cost Principle in accounting is easy to implement
and cheap, but it has few limitations in terms of
the fair value of an asset.
 It ignores any kind of inflation in the value of the
 As already mentioned, financial investment should
not be booked as per Cost Principle; instead, its
value should get changed in each accounting period
as per market value.
Accounting controls are the procedures and the
methods which are applied by an entity for the
assurance, validity and accuracy of the financial
statements but these accounting controls are
applied for compliance and as a safeguard for the
company and not to comply with the laws, rules
and the regulations.
Accounting Controls are the measures and controls
adopted by an organization that leads to increased
efficiency and compliance across the organization
and ensures that financial statements are accurate
when presented to auditors, bankers, investors, and
other stakeholders.
There are various types of control applied within
an organization. Also, there is no straight forward
control policy that applies to every organization.
The application of controls for each organization
is designed and implemented to suit its needs, type
of business, aspirations, goals, and other
 As per the Cost Principle in accounting, asset value
should not get changed, but GAAP allows the asset
value to change based on their fair value. This can
be done using asset impairment also.
1 – Detective Controls
As the name suggests, these controls are the
controls in place to detect any discrepancy and
deviation from the policies in place. It also
1. Segregation of duties – processor and approver
serves the purpose of the integrity check.
should be two different people.
2 – Preventive Controls
2. An independent user id and passwords should be
provided to all the employees.
The controls are applied daily within the
organization to stop the errors or discrepancies
for happening in the first place. We can say these 3. Physical verification of Inventory and Assets
should be done.
are the rules which everyone within the
organization has to abide by in their day to day
4. Bank reconciliation and other Trial balance
reconciliations should be done.
3 – Corrective Controls
5. Standard Operating Procedure documents should
These are the controls that come to rescue when
be made regarding process flow.
preventive and detective both the controls have
failed to avoid an error. In an accounting 6. Surprise check of petty cash and cash book
environment posting an adjustment or rectification
entry is an example of corrective controls. Once
the books are closed after the financial year and
auditors find an issue that needs to be addressed.
Reopening the financial yearbooks and making the
adjustments asked by an auditor is also a part of
a corrective control.
 The action log identifies the person responsible
for any error.
 Accuracy of financial statements and funds
Conservatism Principle of Accounting provides
guidance for the accounting, according to which in
 Efficient use of the resources for the intended
case there exists any uncertainty then all the
expenses and the liabilities should be recognized
 Helpful in audit facilitation
whereas all the revenues and gains should not be
 A strong foundation for a more significant
recorded, and such revenues and gains should be
recognized only when there is reasonable certainty of
 Identification and rectification of any
its actual receipt.
discrepancy identified
 Saving of cost and resources.
Conservatism Principle is a concept in accounting
under GAAP which recognizes and records expenses
and liabilities-certain or uncertain, as soon as
possible but recognizes revenues and assets when
 Sometimes irritating and time-consuming for they are assured of being received. It gives clear
guidance in documenting cases of uncertainty and
 The high cost of maintaining controls and estimates.
 Over dependent for financial statements and
Duplication of work.
 Conservatism principle of accounting states that the
accountants must choose the most conservative
outcome when two outcomes are available to them. The
main logic behind this principle of conservatism is
that when two reasonable possibilities for recording
a transaction are available, one must error on the
conservative side. It means one has to record
uncertain losses while staying away from recording
uncertain gains. So when the conservatism principle
of accounting is followed, a lower asset amount is
recorded on the balance sheet, lower net income is
recorded on the income statement. So, adhering to
this principle results in recording lower profits in
the statements.
 The two main aspects of the conservatism principle
of accounting are – recognizing revenue only if they
are confident and recognizing expenses as soon as
they are reasonably possible.
 The principle of conservatism is the primary basis
for lower of cost or market rule, which tells that
inventory should be recorded at the lower of either
its acquisition cost or the current market value.
Following this process leads to lower taxable income
and lower tax receipts. The conservatism principle
of accounting is only a guideline that an accountant
needs to follow to maintain a clear picture of the
financial standing of a business entity.
Going Concern concept is one of the basic principles
of accounting that states that the accounting
statements are formulated in such a way that the
company will not be bankrupt or liquidated for the
foreseeable future, which, generally is for a period of
12 months.
Going concern concept means the ability of a
Business to ‘run profitable’ for an indefinite
period of time until the concern is stopped due to
bankruptcy and its assets were gone for
liquidation. When a business stops trading and
deviates from its principal business, then there is
a high possibility that the concern would likely
stop delivering profits in the near-term future.
Thus, a Business cannot bear losses for a longer
time and erode shareholders’ wealth. A healthy
business shows Revenue growth, Profitability growth
with margins improvement and growth in product
1 – Acceptability of the core product
A Business runs on the Going Concern basis of the
products/services they offer to the consumers. The pulse
of a business starting from a fruit-seller to a Multinational company selling IT services would be the same.
The owner or the top-management has found new customers
and maintain its existing customer’s so as to maintain
the Organic and inorganic growth of the company.
Retention of old customers and expansion through new
customer acquisition would help to make the business
profitable and aids toward the volume growth of the
product. The product should be reasonably priced and
innovative in nature so that it can beat its peers and
retains value for the customers.
Accrual Accounting is the most accepted accounting
principle which states that revenue is recognized
when the sale is done (irrespective of the cash or
credit sale) and the expense is matched and
recognized along with the corresponding revenue
(irrespective of whenever it’s paid).
Accruals in Accounting are the expenses or revenues
The Financials of the Business should speak about the that have been recorded by the firm but not yet
sustainability of the business through Top-line and realized. In simple terms, they are the financial
Bottom-line growth along with higher Operating and Net transactions already estimated in the current
profit margin. An ideal growing concern should have a
accounting cycle and payment for which is done in
higher number of product sales compared to last year.
the future.
#2 – Margin, Growth, and Volumes
#3 – Cyclical
It showcases exactly what is happening in the
Another instance where there might not be constant top- business, not what a business will achieve shortly.
line and Bottom-line growth along with increased margin For example, if a firm has sold products on credit,
is when the demand for the product is ‘Cyclical’ in then it will show the same as sales even if the
nature. For example, the rise and fall of volume in steel money is yet to be received by the company.
products may affect the Revenue and due to fixed cost,
the profitability may get hinder. But the interesting
part of the Business is that it is still following the
basic fundamentals and due to the nature of the business
it is getting a hit.
 It is a holistic approach: Unlike cash accounting,
accrual accounting is a comprehensive accounting
system. You would agree that a business is not about
cash only. There are many aspects that should be
taken into account. Under the accrual system, we can
record all the financial transactions of business
(cash and others), and we can also create financial
statements like the income statement, balance sheet
to get a more holistic view of how a company is doing
 There are almost no discrepancies/errors: Since the
financial transaction is immediately recorded as it
occurs, there are virtually no chances of
discrepancies or inaccuracies. And since everything
is recorded all the time, if one wants to do an
audit, the information is readily available.
 Accuracy level is higher: Unlike cash accounting,
accrual accounting follows a double-entry system.
That means one account is debited and another account
is credited. As a result, we can see how one account
is reduced, and another account has increased. It
increases the accuracy level of accounting, and later
on, during an audit, things get easier.
 It is recognized by Companies Act: It is recognized
by the Companies Act, and that’s why a vast number
of companies follow this.
 Quite complex: Cash accounting is easy to record
and easy to maintain. But accrual accounting is
complicated to record since every time a
financial transaction happens, there should be
an entry in the books of accounts. And
maintaining the whole accounting system isn’t
an easy job as well.
 Holistic but challenging to maintain: A
business has different aspects. And if a
business is enormous, in the single day hundreds
and thousands of financial transactions need to
be recorded under this accounting. Maintaining
all of these every day, day after day, isn’t
an easy job for an accountant.
Relevance in accounting means the information we
get from the accounting system will help the endusers to take important decisions. End users can be
either internal or external stakeholders. Internal
stakeholders include managers, employees, and
business owners. By external stakeholders, we mean
investors, lenders etc. Therefore, relevance in
accounting indicates the capacity of influencing the
end-users of the financial statement in their decisionmaking process.
In short, accounting relevance should contain
accurate and orderly information. The relevance of
accounting numbers depends on the person using it.
And it will hold more meaning if it has been used
over some time and more useful if one understands
the generally accepted accounting principles based
on which the financial report has been prepared.
Matching Principle of Accounting provides guidance
for the accounting, according to which all the
expenses should be recorded in the income
statement of the period in which the revenue related
to that expense is earned. This means that the
expenses which are entered into the debit side of the
accounts should have a corresponding credit entry
(as required by the double-entry bookkeeping system
of accounting) in the same period, irrespective of
when the actual transaction is made.
Please note that in matching principle of
accounting, for expenses, the actual date of
payment doesn’t matter; It is important to note
when the work was done. In this case study, the
work was completed in July. This recording of such
accrued expenses (irrespective of actual payment
made or not) and matching it with the related
revenue is known as the Matching Principle of
The reported amounts on his balance sheet for
assets such as equipment, vehicles, and buildings
are routinely reduced by depreciation. Depreciation
expense is required by the basic accounting
principle known as the matching principle of
accounting. Depreciation is used for assets whose
life is not indefinite—equipment wears out,
vehicles become too old and costly to maintain,
buildings age and some assets (like computers)
become obsolete.
The principle of revenue recognition is a generally
accepted accounting principle (GAAP) that outlines
the specific conditions under which the revenue is
recognized or is accounted for. Cash may be received
at an earlier stage or at a later date after the goods
and services have been delivered to the customer
and the revenue gets recognized.
Under accrual accounting, revenues need to be
The matching principle in accounting is closely recorded in the same accounting period it has been
related to the accrual accounting. Rather it earned, irrespective of the timings of the related
requires the accrual system to be followed very cash flows from that transaction.
stringently. The term “accrual” in accounting
means anything which is accrued for a particular If the seller is doubtful concerning receiving the
period until it gets paid on a future date.
amount from the customer, he will recognize an
allowance for doubtful accounts in the amount by
Hence, this principle equates the total credits which the customer will likely default on the
with total debits (or total expenses with the total payment.
income) as of a particular period. There are
temporary account
Payable, Accounts
Accounts Receivable
which get net off as
is made.
labels created like Wages
Payable, Interest Payable,
and Interest Receivable, etc.,
and when the actual transaction
1) – Completed Contract Method
Deferred revenue refers to the payments received in
advance for the services yet not rendered or goods
yet not delivered. If a company receives advance
payment, it classifies as a liability, as the
service is not yet performed, and it needs to be
delivered in the future. The deferred revenue
classifies as an asset once the company delivers
the services or goods to the customer.
Under this method, the revenue associated with a
transaction is recognized only after the completion
of the transaction. This method is generally used
when there in case of uncertainty concerning the
collection of funds from the client.
2) – Installment Method
The seller accounts for the transaction by using
the installment method when the customer is allowed
to pay for the product/service over several years.
3) – Cost Recovery Method
As per the cost recovery method, the revenue
recognition is only done after the cost factor of
the sale has been paid by the customer in cash.
4) – Percentage of Completion Method
The seller can recognize some gain or loss related
to the deal in every accounting period in which the
deal continues to be in force. This method is
usually adopted while handling long-term projects.
Full Disclosure Principle is an accounting policy
backed by GAAP (Generally Accepted Accounting
Principles) and IFRS7 (International Financial
Reporting Standards), which requires the
management of an organization to disclose each and
every relevant and material financial information
whether monetary or non-monetary to creditors,
investors and any other stakeholder who depends on
the financial reports published by the organization in
their decision-making process related to the
1 – Materiality
A material item is something that is significant
and impacts the decision-making process of any
person. When an organization prepares its financial
statements, it should ensure that every little
detail which could be relevant to any party is
included in the books of accounts. If it cannot be
2 – Accounting Standards
Accounting standards in every country are like
traffic rules which everyone must abide by. The
accounting standards make it compulsory to disclose
the standards followed by an organization in the
current year and past years. Also, if there is any
change in method of accounting policies from last
year, it should be disclosed with reason specified
for change. This will help the other party to
understand the rationale behind the change.
3 – Auditors
Auditors are one of the components of the full
disclosure principle, which are also supposed to
ensure that the company has disclosed every vital
information in the books or footnote. In case of
any doubt, the auditor to send the confirmation
query to any third party. Also, in cases where the
auditors are not confident about in house data,
they must seek confirmation from higher management
and senior leadership to ensure that numbers in the
financial reports reflect credibility.
included in the financial reports, it must be shown
as a footnote after the reports.
4 – Related Party Disclosures
7 – Non-Monetary Transaction
If an organization does business with another
entity or person who is defined by law as of a
related part, then the former has to disclose to
auditors and in the books of accounts. Related
party disclosure ensures that two entities don’t
get involved in money laundering or reducing the
cost/selling price of a product.
5 – Contingent Assets & Liabilities
Contingent assets and liabilities are those assets
and liabilities which expect to materialize shortly
and the outcome of which depends on certain
conditions. For example – if there is a lawsuit is
in process and the company expects to win it soon,
it should declare this lawsuit and winning amount
as contingent assets in the footnote. However, if
the company expects to lose this lawsuit, it should
declare this lawsuit and winning the amount as a
contingent liability in the footnote.
It’s not always that only the monetary transaction
impacts the organization and another stakeholder.
Sometimes change in the lending bank, appointment,
or release of an independent director, change in
the shareholding pattern is also material to the
stakeholders in the organization. So, the
organization should ensure that any of these types
of activities are disclosed in the books of
8 – Motive
The rationale behind the full disclosure principle
is that the accountants and higher management of
any organization do not get involved in
malpractice, money laundering, or manipulation of
books of accounts. Also, when an outsider has full
information about loans, creditors, debtors,
directors, significant shareholders, etc., it will
be easy to form an informed judgment and opinion
6 – Merger & Acquisitions and Disinvestment about the organization.
If the company has sold any of its products or
business unit or acquired another business or
another organization unit of the same business, it
should disclose these transaction details in the
books of accounts.
 Makes it easier to understand financial
statements and form a decision;
 Makes usage and comparison of financial
statements easier.
 Improves the goodwill and integrity of the
organization in the market;
 Inculcates best practices in the industry and
improved public faith in the organization;
 Essential for audits and applying for loans.
 Sometimes inside information disclosed outside
might be harmful to the company.
 Competitors might use the data and use it
against the company, which will be bad for
Cost Benefit Principle is an accounting concept that
states that the benefits of an accounting system that
help produce financial reports and statements
should always outweigh its associated costs.
The Cost-Benefit principle focuses on the
benefits which the receiver should get from a
given activity. It attempts to measure the
value one can extract after paying a sum of
money. Below are some of the critical pointers
to be kept in mind:
 The controller of the company requiring the
benefits should not spend excessive time on
fine-tuning the financial statements with
Additionally, information through footnotes
should also be avoided since it can give an  An individual/firm/society should take
action only if excessive benefits from
impression of too much window dressing or
taking action are at least as much as the
perhaps distortion of facts.
extra costs
 The entities which have set the standards
require judging the level of information  People generally are under the impression
they expect firms to report in their
as if they are comparing the relevant costs
financial statements. This is done so that
and benefits.
requirements do not cause an excessive
amount of work for the business.
 Critics of this approach often object that
people don’t compute costs and associated
benefits when making a decision.
Consistency Principle states that all accounting
treatments should be followed consistently
throughout the current and future period unless
required by law to change or the change gives a
better presentation in accounts. This principle
prevents manipulation in accounts and makes
financial statements comparable across historical
According to this, all accounting policies or
consistently so that financial statements can
be easily comparable. If an entity changes the
accounting policies or assumptions then it
should be by the reason that law demands the
change or change gives better preparation and
presentation in accounts and if there is change
due to any other reasons that reason to be
stated clearly and also an effect of change and
nature of the change to be disclosed in the
financial statements so that it attracts the
attention of users and users can understand the
change in profit due to change in accounting
estimate or assumptions.
 It is used in all types of industry whether
 This principle is important from both
industry. All entities need to follow
accounting and auditing point of view as the
accounting policies and principles on a
following consistency gives accountants
consistent basis. As consistency is one of
ease in recording business transactions and
the fundamental accounting assumptions
for auditors, it helps in the comparison of
unless the change in accounting policies
financial statements with last year.
disclosed it is assumed that all accounting
policies which followed last year are
 For shareholders and stakeholders also
followed in the current year also.
consistency principle is important as it
Consistency makes the financial statements
gives them the satisfaction that financial
comparable and it also gives ease in
statements are more accurate and reliable.
preparation of accounts.
The correctness of decision is highly
depending on the accuracy of financial
 It is important in every industry as it
information and proper presentation of
makes sure that accounting policies and
financial statements.
assumptions to be followed on a continuous
basis if accounting policies or assumptions
change every year then it confuses the
accountants also and users of financial
statements also get diverted due to heavy
fluctuations in profits.
 Ease in Audit and Accounts: It helps accountants
in recording the accounting transactions and  Restrict to Follow the same Accounting
deals with the accounts and it helps the
Policies and Assumptions: This restricts
auditors in comparing the financial statements
the management to follow the same principles
and provides the basis for reliability on
and assumptions over the years and due to
financial statements.
change in technology situations demand the
change in accounting but this principle
restricts the same.
 Ease for Management: When accounting principles
and estimates applied consistently, management
procedures, technologies, treatments, and its  Judgment
effects and helps in proper decision making.
consistency based on a judgment of whether
 Reduce the Cost of Training: If accounting
accounts hence judgmental errors and
principles are followed consistently then only
problems arise.
initial training to be provided to the
accounting staff and this reduces the training
 Changes Permitted: Only when the new method
 Makes the Financial Statements Comparable: By
following the principle of consistency the
financial statements make the comparison and it
helps the auditors and users of financial
statements to make the comparison of financial
is considered better and gives a better
presentation in accounts. The reason for the
change and its effect on profit to be
disclosed in the financial statements
creates lots of calculations and pressure
on accounting staff.