When unsure, go back to first principles

As you’ll likely encounter in your simulations, at some point you may have to go back to first principles  in your analysis or discussions. There isn’t always clear guidance on an accounting issue or perhaps you just can’t find it. Your best bet at that point is to go back to first principles and analyze or discuss using them. When lost or panicking, go back to the basics, often times keeping that calm and starting with the basics, you’ll stir something makes you remember more detail.

While not a thorough list, and keep in mind there are some differences between IFRS and ASPE, here’s a start to some basic tools you should have in your tool box. These are of course in the Handbook.

Financial Information/Statements Principles – Could enlighten your discussion

  • Always think about users of the financial statements and how they can impact their decision making.
  • Fundamental Qualitative Characteristics
    • Relevance – capable of making a difference in a decision.
    • Materiality – Entity specific, the amount that could affect a decision.
    • Faithful Representation – Faithfully represents what is happening economically.
    • Enhanced Qualitative Characteristics
      • Comparability – Between years for the same entity and among other entities.
      • Verifiability – Different people should reach similar/same conclusions.
      • Timeliness – Having information in time to make decisions.
      • Understandability – Clear and concise to the extent possible.
      • Cost constraint – Benefits should justify the costs
      • Going concern assumption – Accounting changes if the entity is not a going concern.

And, most useful, don’t forget the definitions of these…


Usually you want to talk about such things as the future benefit, does the entity control the asset, has the event occurred to give ownership of the asset and other substance over form type arguments. Consider whether the asset is measurable and collection is likely.


You can discuss things like whether the entity has incurred a liability or can it possibly avoid it? Has the event occurred to give rise to the liability? Is the amount measurable?

Revenues (more in IAS 18 / HB S3400)

Discuss whether performance is complete (this is usually the big one!)


Don’t forget about bias. Profit-oriented enterprises could be bias to:

  • Maximize revenues, minimize expenses
  • Maximize assets, minimize liabilities

Make sure expenses are not being deferred improperly.

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