Abbreviations

What does the abbreviation POA stand for?

According to ABBREVIATIONFINDER.ORG, POA stands for Principles of Accounting which are a set of standards that represent the essence of the doctrines and theories related to this science. Accounting principles govern the exercise of the profession, and respect for them is a condition of legitimacy according to the Brazilian Accounting Standards.

The rules currently in force in Brazil, defined by the Federal Accounting Council (CFC), reduced the number of principles from 7 to 6. CFC Resolution No. 1,282 / 2010 revoked the text of CFC No. 750/1993, causing the principle of monetary restatement to be incorporated into the principle of registration at its original value. The change in resolution also changed the nomenclature by replacing the expression Fundamental Accounting Principles with Accounting Principles.

What are POA?

Currently, the accounting principles in force in Brazil are: the entity, the continuity, the opportunity, the prudence, the registration at the original value and the competence. There is no hierarchy between these principles, and all must be observed simultaneously. Know what each one says:

Entity principle

The entity principle says that the object of accounting is equity. In addition, this principle states that the entity’s assets are not to be confused with private assets – for example, those of its partners.

Equity autonomy also covers the relationship with the equity of other companies and determines that the sum or aggregation of assets of different entities does not create a new entity. For example, even if a person has several companies and makes a consolidated report of all of them to have a more global view of their businesses, these assets remain independent from each other.

Principle of continuity

The principle of continuity is that what says that the company’s accounting should be done on the assumption that the company will maintain its activities, that is, it will continue to operate indefinitely in the future. This hypothesis should be maintained until contrary evidence arises, for example, if the partners effectively decide to close the deal.

This principle is important because the suspension of activities can have an effect on the usefulness of some assets. For example, the company may have very specific machines, which it would not be able to sell to other companies and whose only destination in case of closing the deal would be to turn them into scrap. If the company closes, the value of these machines would be nil. However, for accounting purposes, they have a value as an asset, since the company continues to operate.

Opportunity principle

The principle of opportunity can be subdivided into the principle of integrity and timeliness. It determines that a company’s accounting must produce complete information, without omissions or excesses, in a timely manner for decision making. This is because, if integrity and timeliness are lacking, information may lose its relevance.

The opportunity principle is applied when there is equity variation in the entity. These variations can occur due to transactions carried out with other entities, events of external origin with an impact on equity (changes in exchange rates, natural disasters, etc.) or internal movements, such as the scrapping of goods and the transformation of materials into products. Once the information is reliable, the impact of these events on assets, for example, must be recorded.

Principle of prudence

Also called the principle of conservatism, the principle of prudence aims to leave the company always prepared for the worst scenarios, avoiding overestimating the assets and underestimating the liabilities.

According to this principle, whenever there are equity changes with an impact on shareholders’ equity, if there are equally valid alternatives, accounting should always record the lowest values ​​for assets and the highest values ​​for liabilities.

For example, even if the company is questioning the calculation of any tax in court, it should record it in liabilities for the amount questioned, and not counting that the process will win.

Principle of registration at original value

This principle says that transactions with the world outside the entity must be recorded at the original values, expressed in the country’s currency. If the transaction took place in foreign currency, the amount will be converted into national currency at the time of registration. This care makes it possible to homogenize the registration of assets and their mutations in the comparison between companies.

The original amount determines the baseline of the equity record, which is not changed. However, the registration by the original amount is divided into historical cost and variation in historical cost. The variations that can be recorded are current cost, realizable value, present value, fair value and monetary restatement.

With the inclusion of monetary restatement within the principle of registration at its original value, in 2010, the number of accounting principles dropped from seven to six. Before, still reflecting the periods of hyperinflation, the accounting standardization placed separately the principle of monetary updating.

Principle of competence

The competence principle determines that revenues and expenses must be included in the entity’s records in the period in which they occurred, regardless of the actual receipt or payment.

For example, a sale made in December of one year, but with a ticket generated for January of the following year, will be recorded by the year of the sale, not by the year of payment of the ticket.

Principles of Accounting