What is an accounting principle?

In the USA, accountants have ten clear accounting principles they call GAAP: Generally Accepted Accounting Principles. [1] In the UK and elsewhere, principles mean something else.

In the UK for instance the Financial Reporting Council, the FRC, who set UK standards for accounting have invented ‘pervasive principles’ [2] completely different to American principles. These are principles down in the detail. For example in Section 8 of FRS 102 they state:

“This section sets out the principles underlying information that is to be presented in the notes to the financial statements and how to present it.”

These accounting principles are not part of the foundation of accounting as in the US, but are principles in minor parts of accounting, here in the preparation of financial statements. There are also principles for recognising and measuring inventories, one for recognising intangible assets, principles for amortising goodwill and many others.

The ‘P’ in GAAP in USA stands for principles, while in the UK it stands for practice. Perhaps American accountants are more principled than the British ones, and the British more pragmatic than the Americans. I suppose noone really knows or cares.

The International Accounting Standards Board do not believe in accounting principles at all. They have none. For instance in IAS 1, Presentation of Financial Statements the word principle does not appear. In their Conceptual Framework for Financial Reporting the word principle is used many times but in the sense of ‘in principle’ and they mention only principles of communication but never accounting principles.

Finally an accounting principle is perhaps not a principle at all.

[1] GAAP: Understanding it and the 10 key principles, By Jason Fernando, 28th June 2022, https://www.investopedia.com/terms/g/gaap.asp

[2] I didn’t know the exact meaning of pervasive. For those you like me, the Oxford English Dictionary defines to pervade as: ‘to pass into every part of; to spread throughout; to permeate; to saturate; to fill.’