Accounting Concepts vs Conventions
At the end of each financial year, financial statements are prepared by firms for a number of purposes, which include summarizing all activities and transactions, review the firm’s financial status, evaluate performance, and to make comparisons between previous years, competitors, and industry benchmarks. The financial statements prepared must be consistent and comparable and must also offer a true and fair view of the firm’s financial standing. In order to ensure that these standards of accuracy, fairness and consistency are met, a number of accounting concepts and conventions have been developed. While both aim to offer a more realistic and true view of the firm’s financial statements, there are a number of subtle differences between accounting concepts and conventions. The article clearly explains what is meant by accounting concepts and accounting conventions and highlights the similarities and differences between accounting concepts and conventions.
What are Accounting Concepts?
Accounting concepts refer to a set of principles set in place that ensures that accounting information is presented in a true and fair manner. There are a number of concepts that have been established as standard accounting principles. These concepts have been created by professional organizations and may also be backed by law and governing bodies as the standard principles that need to be followed when preparing financial statements. Accounting concepts include the going concern concept, accruals concept, the prudence concept, realization concept, money measurement concept, dual aspect concept, etc.
What are Accounting Conventions?
Accounting conventions are a set of practices that are generally accepted and followed by accountants. These conventions have been established over time, and are followed as a practice and can change depending on the changes in the financial landscape. Accounting conventions are practices that are generally accepted to be the norm and are not recorded or written down in a formal manner by professional bodies or governing organizations. Accounting conventions can cover a range of issues including how to handle situations ethically, what measures to take when faced with specific issues, how to report and disclose specific sensitive information, etc. With the rise of new accounting issues, new financial products, and changes in the financial reporting landscape, new conventions shall be developed. Examples of conventions include consistency, objectivity, disclosure, etc.
What is the difference between Accounting Concepts and Conventions?
Accounting concepts and conventions are a set of standard methodologies, guidelines and procedures when preparing financial statements, thereby ensure that accounting information is prepared in a manner which is consistent, true, fair and accurate. Accounting concepts and conventions are accepted worldwide as the norm for financial reporting practices. As such, all accounts prepared according to the concepts and conventions are uniform in nature and can be easily used in comparisons and evaluation. The uniformity also reduces any confusion and makes it easier and simpler to understand. Accounting conventions may have to be developed to cater to changes in the financial reporting landscape. These conventions may eventually be made official accounting concepts and added onto the list of standards that are to be followed.
The main difference between accounting concepts and conventions is that accounting concepts are officially recorded, whereas accounting conventions are not officially recorded and are followed as generally accepted guidelines. Accounting concepts have been established by professional organizations and are standard principles that must be followed when preparing financial accounts. Conventions are generally accepted practices that can change and are updated over time, depending on the changes in the financial reporting landscape.
Summary:
Accounting Concepts vs. Conventions
• Accounting concepts and conventions are a set of standard methodologies, guidelines and procedures when preparing financial statements, thereby ensure that accounting information is prepared in a manner which is consistent, true, fair and accurate.
• Accounting concepts refer to a set of principles set in place which ensures that accounting information is presented in a true and fair manner. There are a number of concepts that have been established as standard accounting principles.
• Accounting concepts have been created by professional organizations and may also be backed by law and governing bodies as standard principles that must be followed in the preparation of financial statements.
• Accounting conventions are a set of practices that generally are accepted and followed by accountants.
• Accounting conventions are accepted to be the norm and are not recorded or written down in a formal manner by professional bodies or governing organizations.