Robert K. Mautz
NATURE OF POSTULATES (from Mautz & Sharif, Philosophy of Auditing.)
Five general characteristics of postulates which are helpful to our understanding of them and their function. Postulates are:
(1) Essential to development of any intellectual discipline.
(2) Assumptions that do not lend themselves to direct verification.
(3) A basis for inference.
(4) A foundation for erection of any theoretical structure.
(5) Susceptible to challenge in the light of later advancement of knowledge.
--We cannot start reasoning or thinking without a starting point.
--We can prove nothing to the man who will accept nothing as a basis for discussion.
--Postulates necessarily occupy the cornerstone position in any edifice of theory.
The first difficulty of directly verifying postulates is that they are at bedrock. Since they are the fundamentals in our structure of theory, there is nothing beneath them on which they rest and by which they can be demonstrated.
Postulates must be consistent with one another; we cannot have postulates that are in conflict, for we can build no sound structure upon contradictions.
Theories founded upon inappropriate postulates will son be discovered to be inconsistent, both with one another and with the facts of the real world.

Once we accept the postulates we can draw propositions from them. They provide a basis for thinking about problems and for arriving at solutions. We now have a starting point.

Postulates provide the framework for developing and testing theory.
We must continually review our postulates to see if, in the light of new evidence, they have become invalid.

Unless we recognize clearly the nature and significance of the assumptions on which our theory rests and from time to time examine them carefully, we cannot have any real assurance that our theories and the conclusions to which we have been guided by that theory are sound.

From Paton, Accounting Theory,(quoted in Mautz)
Impressed by the neatly ruled lines and the array of equal footings exhibited by the typical system of accounts and financial statements, the layman is likely to conclude that accounting deals with certainties, with data capable of exact and precise statement; that accounts are either accurate or inaccurate; that the principles and procedures of double entry, if applied without clerical error, will always lead to correct conclusions. Indeed, the accountant at times, may be found slipping, somewhat unconsciously, into the same misapprehension. It is believed that accountants are sometimes in the danger of forgetting their own premises, and, therefore, the limitations of their work. If the accountant sees clearly the foundation upon which he is standing with all its implications, he is less likely to fall into the mire of improper applications and erroneous general conclusions.
The accountant should be thoroughly aware of his assumptions, however, else he is likely to forget the inherent limitations attaching to his exhibits and conclusions.
ARS #1--Postulates are few in number and are the basic assumptions on which principles rest.

(Postulates of ARS #1 are sometimes stated more as rules)

A Statement of Basic Accounting Postulates and Principles,--Illinois Study Group
Nature of Accounting Postulates:
  • Accounting postulates are underlying assumptions which are generally accepted as valid. [granted propositions or "safe" assumptions]
  • describe assumptions which are made, not necessarily those which should be made.
  • furnish a foundation from which other propositions may be deduced; they are fundamental to any theoretical structure.
  • are not formulated through deductive reasoning; instead they are propositions recognizing accepted ideas and are discovered by inductive observation.
Characteristics of Accounting Postulates:
(1) Broad in nature -- provide a basis from which other propositions may be deduced.
(2) Self-evident propositions which underlie and are directly related to the accounting discipline.
(3) generally recognized as valid but are not capable of being proved.
(4) Individual propositions in any system of accounting postulates must be consistent with one another; no accounting postulate contradicts another.
(5) Each accounting postulate is a separate underlying assumption in itself, and does not overlap nor is implied by another postulate.
Postulates, by definition, cannot be proven to be true; if they could, they would not be assumptions.
Proposed Statement of Basic Accounting Postulates [from Illinois Study Group]
(1) Accounting data and reports have validity and usefulness for widely differing purposes.
(2) Economic activity is engaged in by identifiable enterprises, and these enterprises constitute units of accountability and centers of interests for accounting analysis and reports.
(3) Accounting is primarily concerned with the effect on an enterprise of its exchange transactions with other enterprises or individuals and with events which produce results essentially the same as exchange transactions.
(4) Transactions in which an enterprise engages are consummated in terms of a stated or implied money price, and this money price provides an appropriate basis for accounting measurement and analysis.
(5) An enterprise will continue without significant change of environment and activities unless there is persuasive evidence to the contrary.
(6) The flow of economic activity in which an enterprise engages can be related to specified time periods within its life on a meaningful basis.
Postulates are few in number and are the basic assumptions on which principles rest. They necessarily are derived from the economic and political environment and from the modes of thought and custom of all segments of the business community. The profession, however, should make clear their understanding and interpretation of what they are, to provide a meaningful foundation for the formulation of principles and the development of rules or other guides for the application of principles in specific situations.

--9/58 report of Special Committee on Research Programs

ACCOUNTING POSTULATES
A COMPARATIVE ANALYSIS


 
Paton

1. Business entity 

2. Continuity

3. Balance sheet equation 

4. The statement of assets and liabilities is a complete representation of financial position 

5. The value of the measuring unit is the same

6. Cost= initial value

7. Costs attach to the product

8. Costs accrue-revenues do not

9. Sequence of data exist

 Paton & Littleton 

1. Business entity

2. Continuity

3. Measured consideration

4. Costs attach

5. Effort and accomplishment

6. Verifiable objective evidence
AICPA Research Study No. 1

Environmental Postulates

1. Quantification

2. Exchange

3. Entities

4. Time period

5. Unit of measure

Supplementary Postulates

1. Financial Statements

2. Market prices

3. Entities

4. Unit of measure

5. Tentativeness

Imperative Postulates

1. Continuity

2. Objectivity

3. Consistency

4. Stable units

5. Disclosure

 Arthur Andersen

Fairness
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