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The idea of this is then that these financial statements can be compared internationally. Some countries have local, country-specific accounting principles which are then applied to regular companies, whilst larger and/or listed companies are expected to conform to IFRS. Small and medium-sized enterprises will sometimes lean towards following more simplified standards, in addition to any specific requirements advocated by their respective lenders and/or shareholders. These were established by the International Accounting Standards Board (IASB) and continue to be maintained by this particular organization. It is for this reason that the International Financial Reporting Standards (IFRS) have emerged. Growing globalization means there is a need for a common language to allow company accounts to be interpreted and understood all around the world, by people from many different business and accounting backgrounds. Globally there is also a push to bring about greater uniformity when it comes to financial statements. from within the company should not have any influence. Objectivity: all information contained within the accounts should be based on objective evidence – opinions, intentions, desires, biases, etc.The benefits of creating such financial statement should certainly outweigh the cost of supplying it. Cost: this particular constraint states that the cost of providing information must be considered alongside the advantages that can come from using that information.
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Consistency: the word ‘consistency’ here is in relation to the accounting principles and methods being used – they should remain the same from statement to statement.In other words, when confronted with two solutions, it is advised that you opt for the one that is less favorable. At the same time, potential revenue should not be officially acknowledged until it is actually received. conservatism, and for that reason one should recognize possible expenses and liabilities immediately – irrelevant of whether you are uncertain if they will actually occur or not. It emphasizes erring on the side of caution, i.e. Conservatism: This principle relates to the issue of potential earnings and expenditure.Given that materiality depends both on the intended audience of the financial statement, as well as its intended purpose, this principle is seen as a sort of gray area in accounting, where professional judgement should be used. Those that are seen as important are known as material items, and have the potential to influence the economic decisions of those who view the statement. Materiality: the idea behind this constraint is that, when it comes to accounting, certain issues are considered trivial and therefore disregarded.These details can be either in the main body of the statement or else in the accompanying footnotes, etc. Full disclosure principle : all information that is relevant is included in the statement.Cost of Goods Sold – the expense of a sale should be recorded in the same period as the sale was made. how much needs to be spent in order to make financial gain, e.g. This ensures that there can be a more accurate assessment of profitability versus performance, i.e.
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As far as is possible, expenses have to be matched with income of the same period.