This posting is continued from the last one dated 17th January 2018
- Objectivity – we should regard this as the opposite of subjectivity when our opinion of issues, events etc are influenced by our individual bias. Accountancy requires objectivity in financial statements. Where estimates have been used that fact should be described.
- Fairness – in carrying out his responsibility the accountant should be fair to all affected by his reporting. This concept places a burden of impartiality on the external auditor.
- Consistency – methods used in accounting for certain events should remain consistent from year to year e.g. if your company recognises its income only when goods invoiced have been dispatched then it should maintain that method from year to year. If any event occurs that would require a change in that policy then that fact must be disclosed in the accounts.
- Business Entity – this concept refers to the distinct nature of a business enterprise from that of its owners. Hence if your name is Magbagbemi Oluwa and you are trading as Magbagbemi Oluwa & Co (an unlimited liability company) accounting recognises the distinctiveness in your personality from that of the company.
The separation is such that any day you draw money from the business account to wed a new wife the accountant would not regard it as business expenditure but as a drawing on profit. But this is hardly understood by many non-accounting practitioners, sole-owner businessmen etc. any enquiry from the accountant as to what the amount written on a cheque stub described simply as ‘cash’ was meant is often met with very hostile reaction by the owner. You just might hear him say “I am the owner of the business and I am spending my money therefore don’t query me on what I’ve spent it on. If you don’t like it then resign”! These out-bursts, which many a company accountant has had to endure stems from ignorance on the part of the owner. For all he cares you could draw the money and then immediately put a light to it and burn it up. He records it all the same!
The concept of business entity needs being fully elaborated on because it relates more to the perception of sole-owners and partnerships of their businesses than those share holders in public companies. They (the sole-owners) usually regard their businesses as extensions of their physical beings. But for their personal well being and of the business they must achieve separation both mentally and physically to ensure the long-term survival of the business they made so much sacrifice to set-up and run so successfully well.
…to be continued…..
