Accounting Conventions

Accounting Conventions:

a) Convention of Full Disclosure :

According to this convention accounting reports should be disclosed fully and fairly the information they intend to represent. They should disclose information which is of material interest to proprietors, present and potential creditors and investors. (Companies Act 1956)

b) Convention of Materiality :

According to this convention the accountant should attach important material details and ignore insignificant details. This is because otherwise accounting will be unnecessarily overburdened with minute details.

c) Convention of Consistency :

The methods or principles followed in the preparation of various accountsshould be consistent (same) from one accounting year to another.

d) Convention of Conservatism :

This convention warns the trader not to take unrealised income into account. This is the policy of “playing safe”. It takes into consideration all possible losses or expected losses, but leaves all unearned or unrealised profits.