Definition

Accounting principles are the accepted conventions, concepts and guidelines that underpin the preparation of financial statements. In the UK, they are codified primarily in the Companies Act 2006 (Part 15) and in financial reporting standards issued by the Financial Reporting Council, chiefly FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. Larger entities may instead report under IFRS as adopted in the UK. Together, these frameworks establish going concern, accruals, consistency, prudence and fair presentation.

Why this matters for Accounting Principles & Procedures

  • Level 1 knowledge: you must be able to name the principal accounting concepts and explain what each means in plain English.
  • Surveyors advising on acquisitions, lease restructurings or disposals must read financial statements built on these principles.
  • The accruals and going-concern concepts affect how fee income, work-in-progress and lease liabilities are recognised in a surveying firm's own accounts.
  • Understanding the difference between FRS 102 and IFRS matters when advising listed-company clients or international investors.
  • Assessors frequently open this competency with a "name and explain" question to test genuine financial literacy.

Key principles

Going concern

Accounts are prepared on the assumption that the business will continue trading for at least 12 months from the balance sheet date. If going concern is in doubt, the directors must disclose this and may need to prepare accounts on a break-up basis. A sustained loss of major clients or a bank covenant breach could trigger a going-concern review in a surveying practice.

Accruals (matching)

Revenue and costs are recognised in the period to which they relate, not when cash changes hands. A surveying firm that completes a valuation in March but invoices in April recognises the income in March. This ensures the profit and loss account reflects economic reality rather than cash timing.

Consistency and prudence

Consistency requires the same accounting policies to be applied year on year; any change must be disclosed and prior-year comparatives restated. Prudence means that income and assets should not be overstated; liabilities and losses should not be understated. Together, these principles protect the reliability and comparability of financial statements.

Materiality

Information is material if its omission or misstatement could influence decisions by users of the financial statements. Materiality provides a practical threshold: minor rounding errors need not be corrected if they would not affect any user's decision.

Relevant RICS guidance and legislation

  • Companies Act 2006, Part 15 — sets out the statutory accounting principles for UK company accounts.
  • FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (Financial Reporting Council) — the primary GAAP framework for most UK entities.
  • International Financial Reporting Standards (IFRS) as adopted in the UK — mandatory for consolidated accounts of UK-listed entities.
  • RICS Rules of Conduct (effective 2 February 2022) — Rule 2 (competence) requires members to have the skills and knowledge to carry out their work; financial literacy is an explicit expectation at management level.

Ethics and Rules of Conduct angle

Rule 1 of the RICS Rules of Conduct (honesty and integrity) requires members to be straightforward and transparent in all dealings. Manipulating accounting presentation to flatter a year-end profit figure would breach this rule, potentially constitute an offence under the Companies Act 2006, and expose both the individual and the firm to regulatory sanction. A chartered surveyor asked to sign off financial information must be satisfied it is prepared on recognised principles and gives a true and fair view.

APC-style Q&As

Q (Level 1)Name four fundamental accounting principles and give a one-sentence description of each.

Going concern — accounts assume the business will continue trading; accruals — income and costs are matched to the period they relate to; consistency — the same policies are applied year on year; prudence — caution is exercised so that assets and income are not overstated.

Q (Level 1)What is the difference between FRS 102 and IFRS?

FRS 102 is the Financial Reporting Council's standard for most UK private companies; IFRS as adopted in the UK is mandatory for the consolidated accounts of UK-listed companies. IFRS tends to be more detailed in areas such as financial instruments and lease accounting under IFRS 16.

Q (Level 2)How does the accruals principle affect the way a surveying firm recognises fee income?

Fee income is recognised when the service is delivered, not when the invoice is raised or payment received. A valuation completed in the last week of March is included in the March accounts as accrued income, even if the client pays in May. This ensures the profit and loss account reflects the firm's actual trading performance rather than its cash collection pattern.

Q (Level 2)A client's company has recently breached its bank covenants. How does this affect how you read its latest accounts?

A covenant breach raises doubt about the going-concern assumption. You should check the directors' report and notes for any going-concern disclosure, and consider whether assets may need to be valued on a break-up basis. The basis for any going-concern conclusion — for example a lender waiver or confirmed refinancing — is material to any property valuation or lease advisory work for that client.

Q (Level 3)Your firm is advising a private-equity investor on acquiring a regional surveying practice. The target uses FRS 102 but the acquirer uses IFRS. What key differences should you flag?

(example) The most significant differences I would flag are: lease accounting — under IFRS 16, operating leases must be capitalised as right-of-use assets and lease liabilities, whereas FRS 102 retains off-balance-sheet treatment for many leases, so the target's gearing and EBITDA will look different once adjusted; revenue recognition — IFRS 15 may result in different timing of fee recognition compared to FRS 102's stage-of-completion approach; and financial instruments, where IFRS 9 uses an expected-credit-loss model rather than FRS 102's incurred-loss model. I would recommend the due-diligence adviser prepares an IFRS bridge showing the accounts on a like-for-like basis.