1In accounting and financial reporting standards, the words guidance, ruling, and principle refer to different levels or types of authority used when accountants determine how a transaction should be _____
recognized, measured, presented, or disclosed.
2means additional explanation or direction that helps accountants apply an accounting standard correctly.
Guidance
3The standard tells me ____; the guidance helps me understand _____ it.
what to do; how to do
4For example, a standard may say that an asset should be measured using a particular method. The accompanying guidance may provide
1. examples of how to apply the method;
2. illustrations of common transactions;
3. explanations of difficult situations;
4. implementation examples.
5Guidance =
instructions, explanations, and application help.
6is an authoritative decision or interpretation concerning how a particular accounting or reporting issue should be treated.
ruling
7“How should this particular transaction or situation be accounted for?”
ruling
8Ruling =
an authoritative decision or interpretation about a specific issue.
9 is a fundamental rule or concept that serves as the basis for accounting treatment.
principle
10Instead of telling you exactly what to do in every possible situation, a principle establishes the ______ behind accounting
underlying reasoning
11For example, financial reporting is based on principles such as
1. relevance
2. faithful representation
3. accrual basis
4. substance over form
12information should be useful in making decisions
relevance
13information should faithfully represent the economic phenomena it purports to represent
faithful representation
14transactions are generally recognized when the economic effects occur, rather than simply when cash is received or paid
accrual basis
15accounting should reflect the economic substance of transactions where applicable.
substance over form
16Principle =
the fundamental idea or rule upon which accounting treatment is based.
17Principle answers the basic question "____"
Why?
18Fundamental accounting concept or rule
Principle
19Guidance answers the basic question "____"
How?
20Helps you apply the standard
Guidance
21Ruling answers the basic question "____"
What should be done
22Authoritative decision/interpretation for a particular issue
Ruling
23_____ provide the foundation → _____ provide requirements → _____ helps apply the requirements → _____ resolve particular issues.
1. Principles
2. Standards
3. Guidance
4. Rulings/interpretations
24provide the foundation
Principles
25 provide requirements
Standards
26helps apply the requirements
Guidance
27resolve particular issues
Rulings/interpretations
28In practice, an accountant thinks:
1. What is the economic substance?
2. What PFRS/PAS applies?
3. What does the standard require?
4. Is there application guidance?
5. Is there an authoritative interpretation addressing the issue?
6. Apply professional judgment and document the conclusion.