The following factor should be considered while selecting and applying accounting policies
Answers
Answer:
prudence
materially
Explanation:
in view of uncertainty of future events profile are not anticipate
Consideration # 1. Accurate Presentation:
One of the criteria for assessing the usefulness of accounting information is accuracy in presentation of the underlying events and transactions. This criterion may be used by the firm as a basis for selecting accounting principles and methods. For example, assets have been defined as resources having future service potential and expenses defined as a measurement of the cost of services consumed during the period.
In applying the accuracy criterion, the firm would select the inventory cost flow assumption and depreciation method that most accurately measure the amount of services consumed during the period and the amount of services still available at the end of period.
Consideration # 2. Conservatism:
In choosing among alternative generally acceptable principles, the firm may select the set that provides the most conservative measure of net income. Considering the uncertainties involved in measuring benefits received as revenues and services consumed as expenses, some have suggested that a conservative measure of earnings should be provided.
Conservatism implies that methods should be chosen that minimize cumulative reported earnings. That is, expenses should be recognised as quickly as possible and the recognition of revenues should be postponed as long as possible.
Consideration # 3. Profit Maximization:
A reporting objective having an effect opposite to conservatism may be employed in selecting among alternative generally accepted accounting principles. Somewhat loosely termed reported profit maximization, this criterion suggests the selection of accounting principles that maximize cumulative reported earnings.
That is revenue should be recognized as quickly as possible, and the recognition of expense should be postponed as long as possible. For example, the straight-line method of depreciation would be used, and when periods of rising prices were anticipated, the FIFO cost flow assumption would be selected.
Consideration # 4. Income Smoothing:
A final reporting objective that may be used in selecting accounting principles is income smoothing. This criterion suggests selecting accounting methods that result in the smoothest earnings trend over time.
Advocates of income smoothing suggest that if a company can minimize fluctuations in earnings, the perceived risk of investing in shares of its stock will be reduced and, all else being equal, its stock price will be higher.