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(69)-STABLE MONETARY UNIT AND OBJECTTIVITY CONCEPTS

Monday, January 4, 2010

Stable Monetary Unit Concept

The financial statements must be expressed in terms of a monetary unit,

For example in the USA the $

It is assumed that the value of this unit remains constant.
In practice, of course, the value of the unit is not usually constant and comparisons between the accounts of the current year and those of previous years may be misleading.


Objectivity (neutrality) concept

Objectivity means that accountants must be free from bias. They must adopt a neutral stance when analyzing accounting data.

An accountant must show objectivity in his work. This means he should try to strip his answers of any personal opinion or prejudice and should be as precise and as detailed as the situation warrants. The result of this should be that any number of accountants will give the same answer independently of each other.

In practice, objectivity is difficult. To accountants faced with the same accounting data may come to different conclusions as to the correct treatment. It was to combat subjectivity that accounting standards were developed.

The Realization Concept

The realization concept means that revenue and profits are recognized when realized.

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