What are the two underpinning concepts recognised in the Conceptual Framework?

What are the two underpinning concepts recognised in the Conceptual Framework?

• A. Going Concern and Accruals Basis
• B. Going Concern and Cash Basis
• C. Consistency and Prudence
• D. Materiality and Faithful Representation

Answer: (A)

Two concepts underpinning the Conceptual Framework are the going concern assumption and the accrual basis of accounting. The going concern assumption means financial statements are prepared as if the entity will continue operating for the foreseeable future, so assets and liabilities are shown based on ongoing operations rather than liquidation. The accrual basis requires recognizing revenues when earned and expenses when incurred, regardless of when cash is received or paid, giving a true picture of performance and position in the reporting period. The other options mix principles that are not foundational assumptions (such as the cash basis) or refer to qualitative characteristics and constraints rather than the core bases on which statements are prepared.

Two concepts underpinning the Conceptual Framework are the going concern assumption and the accrual basis of accounting. The going concern assumption means financial statements are prepared as if the entity will continue operating for the foreseeable future, so assets and liabilities are shown based on ongoing operations rather than liquidation. The accrual basis requires recognizing revenues when earned and expenses when incurred, regardless of when cash is received or paid, giving a true picture of performance and position in the reporting period. The other options mix principles that are not foundational assumptions (such as the cash basis) or refer to qualitative characteristics and constraints rather than the core bases on which statements are prepared.