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An accounting convention is a practice generally followed by all accountants as a result of custom, although changing norms in the accounting and financial industries result in periodic updates to them. Also known as accounting concepts, they are the groundwork of accounting. These practices are observed all over the world by people working in settings that range from corporate board rooms to small tax consultancy businesses. Professional publications and continuing education trainings provide information about changing conventions to working accountants.
Accounting principles are set out by professional organizations and may also be codified by law. Accounting conventions, on the other hand, are generally accepted but not necessarily formally written up in standards and practices guidelines by accounting organizations. While accountants are in training, they learn about conventions as well as principles, and how to apply them to a wide range of settings. Knowing when and how to apply one is key to practicing accounting ethically and accurately.
These conventions range from ethical guidelines designed to keep accountants honest to steps for handling specific accounting issues. One is available for almost any circumstance an accountant can imagine. As new issues arise, such as questions about how to deal with newly developed financial products on accounting statements, new conventions are developed. Accountants can work together to develop a new standards, and they may eventually be codified as accounting principles that all accountants need to follow.
Accountants must comply with a number of laws in their work, and handling financial accounts requires ethical and financial integrity. One of the key accounting conventions is consistency. Once accountants adopt an accounting method they feel is appropriate to a client or setting, they continue to use it. This eliminates confusion and situations where accounting is unclear as a result of changing accounting methods. Accountants also value transparency and clear presentation of financial data in their work.
Failing to comply with accounting convention may not necessarily violate the law, but it can cause problems. A different accountant may have difficulty understanding and following accounts that do not follow convention. It is possible that mistakes will be made as these guidelines usually underlie principles that must be followed, and not observing them may mean that a principle is ignored as well. It can be harder to identify errors, mistaken or intentional, on an accounting statement when the accountant does not follow convention. This can make audits lengthier and more expensive, in addition to exposing accounting clients to risks caused by not understanding their accounts.