Accounting conventions and principles

Exercise 7.1

Study the vocabulary:

	application		застосування
	approach		підхід
	to be closely associated		бути тісно зв'язаним
	to come upon smth.		прийти в голову
	to claim		твердити, заявляти
	to formulate		формулювати
	figure		особа
	genius		геній
	incorrectness		неправильність
	innovator		новатор
	to identify with smth		ототожнювати з чим-небудь
	mathematician		математик
	mystery		таємниця
	measurement		вимірювання
	origin		походження
	precision		точність
	popularize		поширювати

Exercise 7.2

Read and translate the text:

The definition of the word «principle» is, to some extent, a problem in accounting. The point is that it means a slightly different thing in different countries. For example, in the US it tends to mean conventions of practice. Thus, the American Generally Accepted Accounting Principles encompass a lot of broad and detailed accounting rules. On the contrary, in Britain the detailed rules of this sort are called practices. As for broader matters like «accruals or conservatism, or money measurement» they are traditionally referred to as concepts or conventions. At the same time the word «principle» means something more fundamental and theoretical.

There are four broad well-established principles of accounting: going concern concept, conservatism, consistency and matching. These fundamental and ancient principles are accepted in all the countries of the world.

But still their usage is sometimes confused. The problem with them in any country is that there is potential for conflict. For example, a going concern, the matching concept suggests that development costs ought to be carried forward and matched against the future revenues. It is also assumed that revenues must be assigned to the accounting period when they are received. As for expenses they must be assigned to the accounting period in which they were used to produce revenues.

At the same time prudence suggests that because it is possible that no benefits will arise, all research and development costs should be charged as expenses. This principle demands that the accountant should cautious in the valuation of assets or profits. It means that first always taking the lowest reasonable estimate of the value of assets, and second, always anticipating losses but never anticipating profits.

Both in the UK and Commonwealth countries a true and fair view is the overriding legal requirement for presenting financial statements. The law demands that all the conventions should be interpreted in the context of normal accounting practice. In the UK the law requires that extra information must be disclosed if this is necessary to give a true and fair view. In extreme cases, detailed provisions of the law may be departed from, if this is the only way of giving a true and fair view.

Exercise 7.3

Read the text again and choose the best variant:

1. The definition of the word «principle» is…

d) a problem in economics

e) a problem in management

f) a problem in accounting

2. In accounting there are…

a) many well-established principles accepted in all countries of the world

b) four broad-established principles

c) only two: consistency and matching

3. The problem with principles in any country is that there is potential for…

d) discussion

e) adjustment

f) conflict

4. GAAP encompass…

c) a great deal of accounting theory

d) much practical work in bookkeeping

e) a lot of broad and detailed accounting rules

5. The detailed accounting rules for Britain are…

a) conservatism, consistency and matching

b) going concern concept and matching

c) practices

Exercise 7.4

Fill in the gaps from the table. Then read and translate:

accounting slightly matters rules fundamental encompass principle extent concepts conventions

The definition of the word «principle» is, to some …1…, a problem in accounting. The point is that it means a …2… different thing in different countries. For example, in the US it tends to mean …3…of practice. Thus, the American Generally Accepted Accounting Principles …4… a lot of broad and detailed accounting rules. On the contrary, in Britain the detailed …5…of this sort are called practices. As for broader …6…like «accruals or conservatism, or money measurement» they are traditionally referred to as …7…or conventions. At the same time the word …8… means something more fundamental and theoretical.

There are four broad well-established principles of …9…: going concern concept, conservatism, consistency and matching. These …10… and ancient principles are accepted in all the countries of the world.

Exercise 7.5

Read the whole text again and choose the best answer:

1. What is meant by accounting principles in the US?

a) it means a slightly different thing in a country

b) it means practices in accounting

c) it means conventions of practice

2. What are detailed accounting rules called in Britain ?

a) conservatism

b) matching and consistency

c) practices

3. What are the four broad well-established principles of accounting ?

a) fairness