What fundamental accounting concepts must you keep in mind in preparing to carry out your audit?
Accounting Concept and Records
Fundamental Accounting concepts are covered in IAS-1 Presentation of Financial Statements.
There is basic assumption that all costs have been matched to the revenues they helped to produce from balance sheet point of view this means that accrual, prepayments will be necessary to ensure that costs and revenues are matched correctly.
The financial statements of the business should have been prepared on going concern basis. This primarily affects the value of the assets in statement of financial position of valuation on a breaking basis, where assets are sold individually for guide return would be much lower than their going concern valuation.
Accounting Policies and procedures should be applied consistently from year to year and in relation to similar items with in financial statements. This mean that is expected that one say 2 similar fixed assets are accounted in same way in financial statements.
The financial statements should have beet prepared on prudent basis, with all anticipated losses provided for but no profits anticipates. Where the prudence and matching concepts come into conflict then the prudence concept should prevail.
Financial statements should disclose all material items. An item is material if its non disclosure, misstatement or omission would be likely to affect evaluation on decision of users.
It requires that assets acquired but business under finance lease arrangement should be recorded in its books along with obligations there against.