1. Convention of Disclosure
This convention requires that accounting statements should be honestly prepared and all significant information should be disclosed therein. That is, while making accountancy records, care should be taken to disclose all material information. Here the emphasis is only on material information and not on immaterial information.
2. Convention of Consistency
Rules and practices of accounting should be continuously observed and applied. In order to enable the management to draw conclusions about the operation of a company over a number of years, it is essential that the practices and methods of accounting remain unchanged from one period to another.
3. Conservatism
According to this convention, accounts follow the rule “anticipate no profit but provide for all possible losses”, while recording business transactions.
4. Materiality
The term materiality refers to the relative importance of an item or an event. An item is “material” if knowledge of the item might reasonably influence the decisions of users of financial statements. Accountants must be sure that all material items are properly reported in the financial statement.
