The basic assumptions of accounting used by the International Accounting
Standards Board (IASB) include
a.
Monetary unit.
b.
Decision usefulness
c.
Timeliness.
d.
The Correct Answer and Explanation is :
Correct Answer:
a. Monetary unit.
Explanation:
The International Accounting Standards Board (IASB) establishes fundamental accounting assumptions to ensure consistency, reliability, and comparability in financial reporting across different regions. One of the key assumptions is the Monetary Unit Assumption.
The Monetary Unit Assumption states that financial transactions and events are recorded and reported in a specific currency. This assumption is crucial because it provides a common measurement unit, ensuring that financial statements are meaningful and comparable across periods and organizations. It assumes that the purchasing power of the currency remains stable over time, disregarding the effects of inflation or deflation.
Importance of the Monetary Unit Assumption:
- Standardized Financial Reporting: Since all transactions are recorded in a single currency, stakeholders can compare financial statements across different businesses without confusion.
- Facilitates Economic Decision-Making: Investors, creditors, and management rely on monetary values to assess an entity’s financial health and make informed decisions.
- Simplifies Accounting Processes: Without this assumption, businesses would struggle to record and report transactions consistently due to fluctuations in currency values.
- Supports International Comparability: IASB’s monetary unit assumption helps maintain uniformity across global financial reporting systems, fostering trust in international markets.
Why Other Options Are Incorrect:
- Decision Usefulness (b): While decision usefulness is a key objective of financial reporting, it is not classified as an accounting assumption.
- Timeliness (c): Timeliness is a qualitative characteristic of financial information but not an underlying accounting assumption.
Thus, the Monetary Unit Assumption is the correct answer as it serves as a fundamental basis for financial reporting under IASB standards.
Now, I’ll generate an image to illustrate this concept.
Here is the conceptual illustration of the Monetary Unit Assumption in accounting. The image highlights the use of a common currency in financial reporting, reinforcing the importance of financial consistency. Let me know if you need any modifications!
