Final answer:
FRS 18 outlines four accounting concepts: Going concern, consistency, prudence, and substance over form. These concepts ensure integrity, transparency, and comparability in financial reporting.
Step-by-step explanation:
FRS 18 (Financial Reporting Standard 18) emphasizes four fundamental accounting concepts that guide the preparation of financial statements. The four concepts stated by FRS 18 are:
- Going concern: This assumption implies that a business will continue to operate in the foreseeable future and has no intention or necessity to liquidate or reduce the scale of operations significantly.
- Consistency: This concept requires that accounting policies are applied consistently from one accounting period to another, and that any changes in policies are fully disclosed and explained.
- Prudence: This concept dictates the exercise of caution when making judgments under conditions of uncertainty, ensuring that assets or income are not overstated, and liabilities or expenses are not understated.
- Substance over form: This principle focuses on the economic reality of transactions rather than just the legal form, ensuring that the financial statements reflect the underlying substance of events and transactions.
These concepts are crucial in maintaining the integrity, transparency, and comparability of financial reporting, which benefits users of financial statements, such as investors and creditors.