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

Paton &
Littleton

AICPA Research Arthur

Study No. 1 Andersen

1. Business entity

Environmental
Postulates

1. Business entity
2. Continuity
3. Balance sheet
equation

2. Continuity
3. Measured
consideration

4. The statement
of assets and
4. Costs attach
liabilities is a
5. Effort and
complete
representation of accomplishment
financial position
6. Verifiable
5. The value of the objective evidence
measuring unit is
the same
6. Cost= initial
value
7. Costs attach to
the product
8. Costs accruerevenues do not
9. Sequence of
data exist

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

Fairness

3. Consistency
4. Stable units
5. Disclosure
return to topical outline
return to contemporary accounting issues