Generally Accepted Accounting Principles

Principle of Prudence

An entity shall select the accounting methods such as cannot unreasonably increase or unreasonably reduce the value of the entity's assets, equity and liabilities as well as income and expenditure.

Principle of Materiality

An item is regarded as material if its omission or misstatement is likely to change the perception or understanding of the users of that information, i.e. they may make inappropriate decisions based upon the misstated information

Principle of Periodicity

As regards the handling of accounting, activities of an entity shall be divided into financial years or the reporting periods of other duration at the end whereof financial reports shall be drawn up.

Entity's Going Concern Principle

Financial statements are prepared on the basis that the entity will continue to perform for the foreseeable future. The normal expectation is that based upon current knowledge and understanding of the business, it is reasonable to assume that the business will continue to operate for the next 12 months.

Precedence of Content over Form

Economic operations and economic events shall be accounted according to their content and economic substance and not merely according to their legal form.

Principle of Neutrality

Information must be neutral, i.e. free from bias. Financial statements are not neutral, if by the selection or presentation of information, they influence the making of a decision or judgment in order to achieve as predetermined result or outcome.

Principle of Monetary Measurement

The entire assets, equity capital, liabilities, income and expenditure as well as cash flows of an entity shall be expressed in financial reports in money terms.

Principle of the Comparability

The income of an entity earned over the reporting period shall be related to the expenditure incurred in order to earn the income. Financial reports must be drawn up so that users of the information of financial reports could compare the information presented therein with the information of other reporting periods and the information presented by other entities and correctly assess changes in the financial condition of an entity, performance and cash flows thereof. Financial reports must contain the information of the reporting year and at least one preceding financial year.

Principle of Consistency

The principle means, that users of the financial statements need to be able to compare the performance of an entity over a number of years. Therefore it is important that the presentation and classification of items in the financial statements is retained from one period to next, unless there is a change in circumstances or a requirement of new accounting standards. Consistency of accounting treatment and presentation relates not only from one accounting period to the next, but also within an accounting period, so that similar transactions are accounted for in a similar way

Principle of Fair Presentation

The principle relates to preparation of financial statements in accordance with applicable accounting standards, together with relevant laws and regulations. Disclosure of compliance with accounting standards should be disclosed in the financial statements. If there is less than full compliance, the extent of non-compliance should be disclosed and explained.

Principle of Accrual-based Accounting

This means that transactions are recorded when revenue are earned and when expenses are incurred. This pays no regard to the timing of the cash payment or receipt.

Principle of an Entity

This principle means, that the financial accounting information presented in the financial statements relates only to the activities of the business and not to those of owner. From the accounting perspective the business is treated as being separate from its owners.