Tag: Auditing

Keith is a newly qualified finance manager with Ted plc.

In a conversation with one of his colleagues he has made the following assertions regarding fundamental accounting principles.

Which of Keith’s assertions is correct?

Select ONE answer:

1. The principles must be strictly followed even when an amount is insignificant
2. When in doubt, understate assets and overstate liabilities
3. A company can never change accounting policies
4. The choice of inventory valuation method does not need to be disclosed in the financial statements

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Correct == > According to fundamental accounting principles, when there is uncertainty caution must be exercised so as not to overstate assets nor understate liabilities – the prudence principle. When an amount is insignificant in the specific context it can be omitted – the materiality principle (1). Companies are allowed to change accounting policies if by so doing a fairer presentation is achieved (3). The inventory valuation method(s) used should be disclosed in the notes to the financial statements (4).
3. Not correct
4. Not correct

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