Statement of principles
1) GAAP
• Fairness: fairness between opposing interests should be a constant concern in accounting, since those who use or use accounting data may find themselves faced with the fact that financial statements must be prepared in such a way as to fairly reflect the different interests at stake in a given farm or company.
• Entity: The financial statements always refer to an entity where the subjective or proprietary element is considered a third party.
• Economic assets: The financial statements always refer to economic assets, that is, tangible and intangible assets that have economic value and therefore capable of being valued in monetary terms ”.
• Currency of account: Financial statements reflect equity through a resource used to reduce all its heterogeneous components to an expression that allows them to be easily grouped and compared. This resource consists of choosing a currency of account and valuing the assets by applying a 'price' to each unit. Generally used as account currency is money that is legal tender in the country within which the 'entity' operates and in this case the 'price' is given in units of legal tender.
• Going concern: Unless expressly stated otherwise, it is understood that the financial statements belong to a 'going concern', considering that the concept that informs the aforementioned expression refers to any economic organization whose temporary existence is fully valid and future projection.
• Valuation at cost: The cost value - acquisition or production - constitutes the main and basic valuation criterion, which conditions the formulation of financial statements known also with the concept of going concern ', which is why this standard acquires the character of principle. This statement does not mean to ignore the existence and origin of other applicable rules and criteria in certain circumstances, but, on the contrary, it means to affirm that if there is no special circumstance that justifies the application of another criterion, that of ' cost 'as a basic valuation concept.
• Exercise: In ongoing companies, it is necessary to measure the results of the management from time to time, either to satisfy administrative, legal, fiscal reasons or to meet financial commitments, etc.
It is a condition that the exercises are of equal duration, so that the results of two or more exercises are comparable to each other.
• Accrued: The equity variations that must be considered to establish the economic result are those that correspond to a year without considering whether they have been collected or paid.
• Objectivity: Changes in assets, liabilities and in the accounting expression of net worth must be formally recognized in the accounting records, as soon as it is possible to objectively measure them and express that measure in the currency of account.
• Realization: The economic results should only be computed when they are realized, that is, when the operation that originates them is perfected from the point of view of the applicable legislation or commercial practices and all the risks inherent in such operation have been fundamentally weighed. It should be established in a general way that the concept 'realized' participates in the concept accrued.
• Prudence: It means that when you have to choose between two values for an asset item, you should normally choose the lower one, or else that an operation is accounted for in such a way that the owner's share is lower. This general principle can also be expressed by saying: 'account for all losses when they are known and gains only when they have been realized'.
• Uniformity: The general principles, when applicable, and the particular standards used to prepare the financial statements of a given entity must be applied uniformly from one year to another. The effect on the financial statements of any significant change in the application of the general principles and specific standards should be indicated by means of a clarifying note.
• Significance: When weighing the correct application of the general principles and particular rules, one must necessarily act with a practical sense. Often times there are situations that do not fit within those and that, however, do not present problems because the effect they produce does not distort the general picture. Of course, there is no demarcation line that sets the limits of what is and is not significant and the best criterion must be applied to resolve what corresponds in each case, according to the circumstances, taking into account factors such as the effect on assets or liabilities, in equity or in the result of operations.
• Exposure: The financial statements must contain all the information and basic and additional discrimination that is necessary for an adequate interpretation of the financial situation and the economic results of the entity to which they refer.
2) The principles can be classified into four areas:
Basic postulate: this is where it is determined that accounting cannot harm one estate for the benefit of another. The principle that forms it is that of equity.
This principle is located in this classification because it is stated in a general way, showing to be a basic assumption, an indisputable truth.
Principles given by the socio-economic environment: this part includes everything that has to do with the company, the environment and society. The principles that form it are: entity, economic assets, currency of account, going concern, exercise.
The principle of entity enters into this classification because companies or legal entities are called as this principle, and the classification refers to everything that concerns the company.
Economic goods are part of this classification since they refer to all goods that are owned by the company, and what is related to the company is directly related to the socio-economic environment. Besides, the assets are what make the company, and allow it, among other things, to generate profits or losses, which is related to the economic.
The principle of account currency looks for a monetary unit, which will depend on the environment or the economic market in which the company tries to insert itself, taking into account that when choosing the same currency as the rest of the companies, the activity or the performance of the exercise of it will be facilitated. So, this principle belongs to this classification since it is related to the social and economic environment of the company.
A going concern belongs to this classification because it refers to the present activity of the company and its future.
Exercise falls into this classification because it is directly related to the concept of business. It refers to the fact that the duration of the exercises must always be the same to be able to compare them with each other.
Principles that do to the qualities of the information: this classification includes everything that has to do with obtaining, demonstrating and the way in which the information is exposed. The principles included here are: objectivity, prudence, uniformity, significance, exposure and materiality.
The principle of objectivity refers to the fact that the information must be taken into account in an impartial, fair and moderate way so that there is no alteration and the information is true.
The principle of prudence refers to the fact that losses should be recorded when they are known, and gains only when they are realized. It also mentions that between two values for an asset element, the usual thing is to choose the lower one. The aforementioned refers to the management of information regarding the positive or negative results of a company and the use of asset values.
Uniformity refers to the fact that the chosen economic policy, the rules and the forms used by the company must always be the same for each year, they must be heterogeneous so that they can be compared with each other.
Materiality refers to the fact that the policies generally used to solve a problem should generally be the same, trying to ensure that the accounting statements of liabilities, assets and equity are not affected by the problem.
Significance expresses that the financial statements will only be affected when there is a really important and transcendental problem.
The principle of exposition mentions that the information must be represented clearly, explicitly and accurately, so that the information can be interpreted satisfactorily and correctly.
Principles of substance or valuation: this classification corresponds to everything that has to do with payment commitments, collection, results of the exercise and costs. The principles that correspond to it are: valuation at cost, accrual, realization.
The principle of valuation at cost, as its name indicates, expresses that at the time of giving a value to an asset element, the appraisal that must be taken into account as a priority is the acquisition or purchase.
Accrued means that the results must be taken into account without considering whether they were paid or collected, which is related to the result of each year.
Realization is closely related to accrued, with the difference that realization explains that the economic results must be recorded once the economic act has concluded from the legal point of view or commercial guidelines. It falls into this classification because the application of this principle will affect the result for the year.
3) The relationship that exists between the valuation at cost and realization is that both determine the value that an exchange asset can have. But one determines the cost value and the other determines the sale price of this good.
Valuation at cost is used when it is necessary to value assets, and realization is used when an economic analysis has to be made at a managerial level.
4) The relationship between the realization and the accrual is that both refer to the determination of results, causes or effects and are activated at the exact moment in which the economic act occurs. Both are used to observe the culmination of an exercise, and the results thrown by it.
5) The relationship that exists between the concepts of significance and uniformity is that a fact is uniform until something arises that makes it change, and this must be justified by some significant action.
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