Principles of proper accounting

Below are the principles of proper accounting. Accurate accounting is important as it serves to provide information to third parties.

Proper Accounting

There are several valid basic principles that must be adhered to. These include: materiality, clarity, completeness, and consistency. Also mentionable are the gross principle and the principle of prudence.

Materiality

In accounting, not every item that has occurred during a fiscal year can be represented. There are also unclear positions such as goodwill and depreciations, where absolute exact amounts cannot be stated. The principle of materiality therefore stipulates that all facts are material that significantly affect the evaluation and presentation to such an extent that it could change the judgment of the addressees. The measure of materiality must therefore be assessed from the perspective of the addressees.

Clarity

The principle of clarity primarily demands a clear presentation and structure. Unusual positions must be explained in the notes. It is important that the accounting does not give rise to misleading.

Completeness

Completeness requires that all assets and liabilities be listed. Thus, all information that is decisive for assessing the economic situation of a company must be disclosed. The principle of completeness also includes the need to mention any potential risks.

Consistency

The principle of consistency means that the same presentation is chosen in various reports. This makes the reports comparable and enables continuous observation of the company's development. If a different method is suddenly applied in accounting, this change of method must be justified.