Accounting measurement should be based on evidence that is verifiable by competent persons
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Log in through your institution journal article Reliability and Objectivity of Accounting MeasurementsThe Accounting Review Vol. 41, No. 3 (Jul., 1966) , pp. 474-483 (10 pages) Published By: American Accounting Association https://www.jstor.org/stable/244477 Read and download Log in through your school or library Subscribe to JPASS Unlimited reading + 10 downloads Journal Information The Accounting Review is the premier journal for publishing articles reporting the results of accounting research and explaining and illustrating related research methodology. The scope of acceptable articles embraces any research methodology and any accounting-related subject. The primary criterion for publication in The Accounting Review is the significance of the contribution an article makes to the literature. Publisher Information The American Accounting Association is the world's largest association of accounting and business educators, researchers, and interested practitioners. A worldwide organization, the AAA promotes education, research, service, and interaction between education and practice. Formed in 1916 as the American Association of University Instructors in Accounting, the association began publishing the first of its ten journals, The Accounting Review, in 1925. Ten years later, in 1935, the association changed its name to become the American Accounting Association. The AAA now extends far beyond accounting, with 14 Sections addressing such issues as Information Systems, Artificial Intelligence/Expert Systems, Public Interest, Auditing, taxation (the American Taxation Association is a Section of the AAA), International Accounting, and Teaching and Curriculum. About 30% of AAA members live and work outside the United States. Rights & Usage This item is part of a JSTOR Collection. Recommended textbook solutions
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 Essentials of Investments9th EditionAlan J. Marcus, Alex Kane, Zvi Bodie 689 solutions Accounting: What the Numbers Mean9th EditionDaniel F Viele, David H Marshall, Wayne W McManus 338 solutions Topic 2: Accounting ConceptsWhat is the Accounting Entity Concept? Accounting Entity Concept – Each business is a separate entity from its owner. For accounting purposes, the business is regarded as an accounting entity or a business entity. It exists as a unit by itself, separate from its owner. This means that all financial information relating to the business is recorded and reported separately from the owner’s personal financial information. What is the Going-Concern Concept? Going-Concern Concept – The business entity will continue to operate indefinitely.In accounting, the business is always assumed to be a going concern, i.e. to operate for an indefinite period of time. What is the Accounting Period Concept? Accounting Period Concept – The life of a business is divided into specific periods of time for the purpose of preparing financial reports. The accounting period may be a month, a half-year, a full year, or any other length of time, depending on the volume and nature of the business. What is the Historical Cost Concept? Historical Cost Concept – All transactions of a business entity are recorded at the original cost to the business. Resources are recorded at the actual values at which they were bought or sold, called ‘historical costs’. This means that a piece of land purchased years ago is still recorded at its original cost even though its value is considerably higher now. This practice is based on the assumption that the business is a going concern and is not likely to be liquidated, so the market or realizable value is not relevant. Example: Alice, owner of Courts, bought a TV at $5,000. Her friend, Miss Chew offered to buy it from her at $10,000. Based on historical cost concept, Alice should only record the TV in her books as $5,000. What is the Matching Concept? Matching Concept – Revenue earned during an accounting period has to be matched with the expenses associated with earning that revenue. Example: Impress Furniture sold a sofa set for $1,000 to a customer on 25th December 2001. The cost of the sofa set is $350. In 2002, a dining set which cost $150 was sold for $800.In this case, the sale of $1,000 should be matched with the cost of $350 for the year 2001. The sale of $800 should be matched with the cost of $150 for the year 2002. What is the Materiality Concept? Materiality Concept – This concept requests the disclosure of information which, if known to users, would seriously affect them in decision-making. Example: Impress Furniture’s book-keeper forgot to record a sale of furniture $100 made in 2001. The total sales of the business for 2001 amount to $5 million.The omission to record the $100 sale is immaterial because it has no serious effect on those who use the profit figure in decision-making. What is the Monetary Concept? Monetary concept – This concept states that only transactions which can be measured in money terms are recorded. What is the Prudence (also known as Conservatism) Concept? Meaning: If an accountant is given two alternatives of reporting an item, the alternative which gives a lower profit or lower asset value should be adopted. The following examples indicate the application of conservatism in accounting:
What is the Consistency Concept? The same accounting method should be applied in each accounting period when preparing financial reports. If a certain method of accounting treatment had been applied to an item, the same method is applied in the future. What is the Objectivity Concept? There must be objective verifiable evidence for reporting any accounting information.According to this principle, a business transaction should be supported by documentary evidence. Objectivity means the document should contain facts in an unbiased manner. Accounting should be done without prejudice. What is the Realisation Concept? This concept states that income should be recorded as earned in the period in which goods or services are provided to customers by the business. What is the Monetary Concept? This concept means that only transactions which can be measured in money terms are recorded. Why should accounting information be verifiable?Verifiability helps to assure users that the financial statements are a true and fair representation of the underlying transactions. If the information contained in the financial statements is not verifiable, the users would have no sound basis to place trust in the information.
What is verifiable in accounting?What is Verifiability in Accounting? Verifiability means that it should be possible for an organization's reported financial results to be reproduced by a third party, given the same facts and assumptions.
What type of information is verifiable and objective?Reliable information is verifiable and objective.
Which suggest rules and criteria of accounting measurement?There are four basic principles of financial accounting measurement: (1) objectivity, (2) matching, (3) revenue recognition, and (4) consistency. 3. A special method, called the equity method, is used to value certain long-term equity investments on the balance sheet.
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