BeechyV1_5e_ch02_st

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LO 2-3
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Time Period Assumption

Time period assumption: changes in a business’ financial position should be reported: Annually or 52 weeks Quarterly in some cases
LO 2-3

Unit of Measure Assumption

Unit of measure assumption: results of economic activities can be reported in terms of a standard monetary unit throughout the financial statements If it cannot be measured, it cannot be reported

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LO 2-1

Accounting ‘Principles’ (cont’d)

To construct financial statements for a particular enterprise, it is necessary: to determine the objectives of financial reporting; ensure underlying assumptions are valid; measure the elements using situation specific measurement methods while satisfying qualitative criteria; and prepare financial statements.
Criteria for Accounting Choices
Chapter 2

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Introduction



Financial statement concepts and principles that guide choices Use of professional judgement Criteria that distinguish professional judgement from the exercise of uninformed opinion or bias Concepts similar for both IFRS and ASPE

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LO 2-3

Proprietary Assumption (Concept)

The proprietary concept: an organization’s financial condition and results of operations are reported from the point of view of the owners, or proprietors in an economic sense One accepted by IFRS and ASPE Alternative - The entity concept : the owners are just one of many participants in the enterprise
Corporations are separate for legal and tax purposes Sole proprietorships and partnerships may not be separate for legal and tax purposes

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LO 2-3

Stable Currency Assumption


The relative value of a currency can be measured in two ways: in relation to the value of other currencies (its exchange rate) in relation to the amount of goods and services that it will buy (its purchasing power) For IFRS and ASPE, accounting is performed under the assumption that every dollar of revenue and expense has the same value
Elizabeth Farrell Schulich School of Business York University
Slides prepared by Ingrid McLeod-Dick – Finance Department – Schulich School of Business Copyright © 2010 McGraw-Hill Ryerson Ltd

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Copyright © 2010 McGraw-Hill Ryerson Ltd
LO 2-1

Structure of the Accounting Choice Process
Organizational Facts
Financial Reporting Objectives
Underlying Assumptions
Intermediate Accounting 5th ed.
Thomas H. Beechy Schulich School of Business York University Joan E. D. Conrod Faculty of Management Dalhousie University

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Copyright © 2010 McGraw-Hill Ryerson Ltd
LO 2-2

Underlying Assumptions


Six basic assumptions significantly affect the recording ,measuring, and reporting of accounting information: (similar for IFRS and ASPE) Universal assumptions: time-period separate entity unit of measure Entity specific propriety approach continuity stable currency
Reporting Constraints
Qualitative Characteristics
Measurement Methods
Accounting Choice Decisions
Elements of Financial Statements
Financial Statements
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Long enough to recover or use up assets and pay its liabilities

Two instances in which the continuity assumption are not valid are:
(1) when a business is a limited - life venture (2) when a business is in financial difficulty and is expected to be shut down or liquidated

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LO 2-3

Separate Entity Assumption

Separate entity assumption : all accounting records and reports are developed from the viewpoint of a single entity, whether it is a proprietorship, a partnership, or a corporation
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LO 2-3
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Continuity Assumption

Continuity assumption (going-concern assumption): the business entity is expected not to liquidate but to continue operations for the foreseeable future

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LO 2-1