BIM31030 | Tax and accountancy: concepts and pervasive principles

The guidance in this chapter refers to FRS 102 Section 2 Concepts and Pervasive Principles.

Related standards under other frameworks are:

FRS 105 Section 2 Concepts and Pervasive Principles

IAS: Conceptual Framework for Financial Reporting

Old UK GAAP: FRS 18 Accounting Policies

FRS 102 Section 2 Paragraph 36 requires entities to apply the accrual basis of accounting in preparing financial statements. On the accrual basis, income and expenses are recognised when they satisfy the definitions and recognition criteria for those items, not as money is received or paid.

The standard also sets out a number of qualitative characteristics which enhance the usefulness of financial information and hence underlie the recognition and measurement principles of GAAP. These are:

• Understandability

• Relevance

• Materiality

• Reliability

• Substance over form

• Prudence

• Completeness

• Comparability

• Timeliness

• Balance between benefit and cost

With regard to prudence, FRS102 recognises that a degree of caution is necessary in making judgements and estimates under conditions of uncertainty. However, it makes it clear that the requirement to exercise prudence does not allow the deliberate understatement of income or assets or the deliberate overstatement of expenses or liabilities. In short, prudence does not permit bias.

Each of the qualitative characteristics is discussed in detail within the FRS and, where further advice on the application of the concepts and pervasive principles is required, you should consult with an HMRC Advisory Accountant.