Definition
The Statement of Principles is a document first issued by the Accounting Standards Board (ASB) in 1995 and finalized in December 1999. This document aims to provide a conceptual framework for UK accounting standards. It comprises the following seven chapters:
- The Objectives of Financial Statements
- Qualitative Characteristics of Financial Information
- The Elements of Financial Statements
- The Recognition of Items in Financial Statements
- Measurement in Financial Statements
- Presentation of Financial Information
- The Reporting Entity
The conceptual framework is intended to serve as the foundation for establishing accounting standards and ensuring consistency across financial reporting.
Examples
Example 1: Objective of Financial Statements
A financial statement aims to provide information about the financial position, performance, and changes in financial position of an entity, helpful for a wide range of users in making economic decisions.
Example 2: Qualitative Characteristics of Financial Information
The qualitative characteristics include understandability, relevance, reliability, and comparability, ensuring the information reported meets the needs of users.
Example 3: Elements of Financial Statements
The elements consist of assets, liabilities, equity, income, and expenses, which are recognized in the financial statements based on specific criteria to ensure accurate reporting.
FAQs
What is the Statement of Principles?
The Statement of Principles is a document issued by the ASB to provide a conceptual framework for UK accounting standards, guiding the preparation and presentation of financial statements.
Why is the conceptual framework important?
The conceptual framework is critical as it provides a coherent and consistent basis for developing accounting standards and ensures financial information’s relevance and reliability.
When was the Statement of Principles first issued?
The Statement of Principles was first issued in 1995 and went through various drafts before being finalized in December 1999.
What are the seven chapters of the Statement of Principles?
The seven chapters include:
- The Objectives of Financial Statements
- Qualitative Characteristics of Financial Information
- The Elements of Financial Statements
- The Recognition of Items in Financial Statements
- Measurement in Financial Statements
- Presentation of Financial Information
- The Reporting Entity
How does the Statement of Principles relate to the Financial Reporting Standard (FRS)?
The current conceptual framework for UK accounting practice can be found in Sections 2 and 3 of the Financial Reporting Standard Applicable in the UK and Republic of Ireland, which builds on the principles established in the Statement of Principles.
Related Terms and Definitions
Accounting Standards Board (ASB)
A former accounting standard-setting body in the UK responsible for issuing the Statement of Principles and various accounting standards. It has now been replaced by the Financial Reporting Council (FRC).
Conceptual Framework
A system of interconnected objectives and fundamentals that provide the foundation for developing consistent accounting standards and for resolving accounting issues.
Financial Reporting Standard (FRS)
Standards issued by the Financial Reporting Council (FRC) that provide specific guidelines on preparing and presenting financial statements in the UK and the Republic of Ireland.
Online Resources
- Financial Reporting Council (FRC) Website
- ICAEW Guide to the Conceptual Framework
- IFRS Foundation Conceptual Framework
Suggested Books
- “UK Accounting Standards” by Ernst & Young
- “Financial Accounting and Reporting” by Barry Elliott and Jamie Elliott
- “The Principles and Practice of Financial Accounting” by Gill Jones and Roshan Perera
Accounting Basics: “Statement of Principles” Fundamentals Quiz
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