Underlying Assumptions

Underlying assumptions
There are two fundamentally important assumptions on which financial statements are based,
being the accrual basis of accounting and the going concern basis. Both of these are
discussed in IAS 1. However, the fundamental principle of the accrual basis of accounting is
that transactions are recorded in the financial statements when they occur, not when the
related cash flows into or out of the entity occur. [Framework 22]
Under the going concern basis, financial statements are prepared on the assumption that an
entity will continue in operation for the foreseeable future. This basis is important, for
example, in the assessment of the recoverability of a non-current asset, which is expected to
generate benefits in the ongoing business even if its resale value is minimal. [Framework 23]