Three Rules

(i) Usefulness (Relevance)

(ii) Objectivity and

(iii) Feasibility.

(i) Usefulness (Relevance):

The ‘Standards’ must cater to the carefulness of the accounting
statements. In short, the statements must be meaningful to the users
of the same.

(ii) Objectivity:

The ‘Standards’ should have objectivity, i.e., they must be supported

and supplemented by basic facts or data and not by the whims of the
individuals who prepare the statements.

(iii) Feasibility:

The ‘Standards’ must be practicable or feasible to attain. For example,

inventory should be valued at cost price or market price/realisable
value whichever is lower. This is determined on the basis of feasibility
and practicability for ascertaining the costs from cost records and
market/ realisable value from the past sales or future trend. Generally
the above three factors are found in accounting standards. But
exceptions are there, where a compromise is made and an optimum
balance of the three is struck.

The characteristics of Accounting Principles are:

(a) Accounting principles are made and developed by men

(accountants) and, as such, they do not have the authoritativeness of
universal principles, like other natural sciences, viz., Physics,
Chemistry, Mathematics etc., since they cannot be validated/proved
by reference to natural laws as in the case of physical sciences. They
are the best possible suggestions based on practical experiences,
reasons and observations which have been developed by the
accountants.
(b) Accounting principles are developed for common usage to ensure
uniformity and understandably. They also enhance the usefulness of
facts and figures relating to economic activities of the firm.

(c) The principles are not specifically made or enhanced by any

authority.

(d) The principles are in the process of evolution, i.e., are not in their
finished form. On the other hand, they are fast developing.

(e) They are not rigid.

(f) The Principles should generally be acceptable and, for the purpose,
the three criteria (referred to above)—viz., usefulness, objectivity, and
feasibility-must be fulfilled.