When is an accounting principle an accounting assumption?
The American accounting profession spoil their structured approach to GAAP by announcing there are three, perhaps four accounting assumptions [1] which accountants must understand before applying their Generally Accepted Accounting Principles.
The first American assumption states that a business is separate from its owners. Under IFRS, this American assumption is considered so obvious it is never mentioned.
The second assumes a company will continue to exist and not go bankrupt. This assumption is similar to one of the ten accounting principles: the principle of continuity so some accountants do not always consider it an assumption. The name given to this assumption is ‘going concern’ used by the IFRS, International Financial Reporting Standards and picked up later in the American Standards set by the FASB. [2]
The third assumes that financial statements are prepared with dollar amounts. Outside the USA this assumption is impossible. Currencies other than the US dollar are of course used. Under IFRS, companies have to decide on a principle currency called the functional currency and prepare their financial statements using this. So it is not an assumption but a rule under International Accounting Standard 21, The Effects of Changes in Foreign Exchange Rates.
Finally, financial statements are prepared on an annual basis. It is amazing that the Conceptual Framework for Financial Reporting issued by the International Accounting Standards Board does not state this clearly. The Framework only states that ‘financial statements are prepared for a specified period of time’, called the ‘reporting period’.
But to be fair, their very first Accounting Standard IAS 1, Presentation of Financial Statements does state that financial statements should be prepared ‘at least annually’ in paragraph 36.
So under IFRS, this becomes a rule within a standard and not an assumption before a principle.
[1] Course Hero, Accounting Theory, by Alice Tuovila, 14th July 2019 https://www.coursehero.com/file/76653675/Accounting-Theorydocx/
[2] FASB, Financial Accounting Standards Board