Last reviewed: July 2026.
“Accounting conventions” is a traditional teaching term for commonly accepted ideas that make financial records and statements more consistent and understandable. Modern IFRS literature does not present one universal checklist called the accounting conventions. Instead, it uses the objective of financial reporting, qualitative characteristics, recognition and measurement concepts, and requirements in individual Standards.
The older terminology is still useful for learning, but it should be connected to the current framework rather than treated as a set of mechanical rules.
From traditional conventions to modern concepts
| Traditional term | Modern reporting idea | Practical meaning |
|---|---|---|
| Going concern | Basis of preparation and disclosures | Use a continuing-operation basis unless liquidation or cessation is intended or unavoidable. |
| Accrual or matching | Accrual accounting | Recognise economic effects in the periods in which they occur, not only when cash moves. |
| Consistency | Comparability plus consistent policy application | Use policies consistently and explain justified changes. |
| Materiality | Information capable of influencing decisions | Focus recognition, presentation and disclosure on information that matters in context. |
| Prudence | Caution supporting neutrality under uncertainty | Avoid overstating or understating assets, liabilities, income or expenses through biased estimates. |
| Substance over form | Faithful representation of economic substance | Account for the economic reality, not merely the legal label. |
| Money measurement | Recognition and measurement concepts | Financial statements quantify items that meet recognition and measurement requirements. |
Going concern
The going-concern basis assumes that the entity will continue operating rather than liquidate or cease trading. It affects how assets and liabilities are measured and presented. Management must assess whether material uncertainties cast significant doubt on the entity’s ability to continue as a going concern and provide appropriate disclosures.
Read the detailed guide to the going concern concept, assessment and disclosures.
Accrual accounting and matching
Accrual accounting recognises the effects of transactions and events when they occur. Revenue is not necessarily the same as cash received, and expense is not necessarily the same as cash paid. Receivables, payables, prepayments, accruals, depreciation and inventory adjustments arise because financial statements measure performance for a period rather than only cash movement.
The traditional matching idea should not be used to create an asset or liability that fails the applicable definition and recognition requirements. Expenses are recognised through the reporting of changes in assets and liabilities, not simply because management wishes to smooth profit.
Consistency and comparability
Consistency helps users compare results across periods, but it does not mean that an unsuitable accounting policy must be retained forever. A policy may change when an IFRS Standard requires the change or when the new policy provides reliable and more relevant information under the applicable requirements.
A justified policy change is generally applied retrospectively when practicable, while a change in an accounting estimate is normally recognised prospectively. The article on accounting policies and estimates under IAS 8 explains the distinction.
Materiality
Information is material when omitting, misstating or obscuring it could reasonably influence the decisions of primary users of general-purpose financial reports. Materiality depends on nature, magnitude and context. A small related-party transaction may be material because of its nature, while another item may be material because of its amount.
Materiality affects recognition decisions, aggregation, presentation and disclosure. It is not a licence to ignore controls or deliberately record inaccurate information.
Prudence
Prudence means exercising caution when making judgements under uncertainty. In the modern Conceptual Framework, prudence supports neutrality. It does not justify automatically understating assets and income or overstating liabilities and expenses.
Examples include assessing expected credit losses, inventory net realisable value, impairment, useful lives and provisions using supportable evidence. Read more in the guide to the modern prudence concept.
Substance over legal form
Financial information should faithfully represent the economic substance of transactions. The legal form is important evidence, but it may not fully describe the rights, obligations and risks created by an arrangement.
For example, an arrangement described as a “sale” may include terms that retain significant control or create an obligation to repurchase. The accounting analysis must consider the actual economic rights and obligations and then apply the relevant Standard.
Money measurement and the reporting boundary
Financial statements express recognised elements in monetary amounts using appropriate measurement bases. This does not mean that non-financial matters are unimportant. Employee capability, reputation, customer relationships and environmental risks may be highly relevant even when they do not meet the requirements for separate recognition as assets.
The money measurement concept article explains this limitation. A reporting entity also needs a defined boundary so users understand which activities, assets and liabilities are included.
Qualitative characteristics of useful information
The IFRS Conceptual Framework identifies relevance and faithful representation as fundamental qualitative characteristics. Comparability, verifiability, timeliness and understandability enhance useful information. These characteristics work together:
- Relevance: information can make a difference to decisions.
- Faithful representation: information is complete, neutral and free from error to the extent possible.
- Comparability: users can identify similarities and differences across entities and periods.
- Verifiability: knowledgeable observers can reach reasonable agreement about the representation.
- Timeliness: information is available while it can still influence decisions.
- Understandability: information is classified, characterised and presented clearly.
Concepts are not a substitute for Standards
The Conceptual Framework guides standard-setting and helps entities develop accounting policies when no specific IFRS Standard applies. It does not override a requirement in an IFRS Standard. When a Standard directly addresses a transaction, the entity applies that Standard.
The IFRS Foundation’s Conceptual Framework overview describes the objective, qualitative characteristics, elements, recognition, measurement and presentation concepts. The IAS 8 overview explains the basis for selecting and changing accounting policies and dealing with estimates and errors.
Practical review checklist
- Identify the relevant IFRS Standard before relying on a broad concept.
- Determine the economic substance and reporting period of the transaction.
- Apply recognition and measurement requirements consistently.
- Use unbiased, supportable estimates and disclose material uncertainty.
- Consider materiality in the context of the complete financial statements.
- Explain significant policies, judgements, estimates and changes clearly.
Key takeaway
Traditional accounting conventions remain useful as learning labels, but modern financial reporting is organised around objectives, qualitative characteristics and requirements in IFRS Standards. Going concern, accrual accounting, consistency, materiality, prudence and economic substance should be applied together to produce relevant and faithfully represented information.
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