The meaning of the four accounting concepts in SSAP2 has
developed and evolved over time and they are treated differently in
FRS18 which applies to all accounts within its scope from 22 June
2001 although earlier adoption is recommended.
FRS18 recognises that
going concern and
accruals are critical to the selection of
accounting policies and these are retained within the new standard.
The other two concepts from SSAP2, consistency and prudence, are
recognised within FRS18 as desirable rather than fundamental
qualities of financial information. These two concepts are placed
within the context of four objectives against which the
appropriateness of accounting policies are to be judged. These
objectives are:
FRS18 recognises that there are constraints and that there is a
need to balance these objectives and also to balance the costs of
providing financial information for the likely benefit to users of
that information.
FRS18 makes clear that prudence requires accounting policies
should take account of uncertainty about the existence of assets,
liabilities, gains, losses and changes to shareholders' funds or
the amount at which they should be measured. It also states that
there is no need to exercise prudence where there is no
uncertainty, nor should prudence be used as a reason to create, for
example, hidden reserves or excessive provisions, deliberately
understating assets or gains, or deliberately overstating
liabilities or losses. To do that would mean that the financial
statements are not neutral and therefore not reliable.
Each of the objectives is discussed in detail within the FRS
and Inspectors should consult with the local Revenue Advisory
Accountant where further advice on the application of FRS18 is
required.
