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Industry Practices Constraint

Moneyzine Editor
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Moneyzine Editor
1 mins
January 22nd, 2024
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Industry Practices Constraint

Definition

The term industry practices constraint refers to an accounting constraint that states the preparation of financial statements for some industries require a departure from what would be considered standard accounting practices.

Explanation

Constraints accounting is a financial reporting approach that is consistent with the framework outlined by the Financial Accounting Standards Board (FASB). In addition to industry practices, such constraints include cost / benefit along with materiality.

The constraint of Industry Practices means some industries will report information on a financial statement in a way that departs from generally accepted formats. The most often cited examples of this constraint apply to the utility, agricultural, and financial services sectors.

Since electric, gas and many other utilities are capital intensive industries, the first line item appearing on their balance sheets are non-current assets (utility plant). Individual crops are usually reported at market value in the agricultural industry. The treatment of securities held by financial services companies will differ from that of a company in the software or other industries.

Related Terms

  • Financial Accounting Standards Board (FASB)
    The Financial Accounting Standards Board, or FASB, is an independent, non-profit organization which establishes the financial accounting standards used by companies in the preparation of financial reports.
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  • Cost Benefit Constraint
    The term cost / benefit constraint refers to an accounting constraint that states the cost of providing information must be measured against the benefit derived from the use of that same information.
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  • Conservatism Constraint
    The financial accounting term conservatism constraint refers to an accounting constraint that states when in doubt, report information that does not overstate income or assets or does not understate expenses or liabilities.
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  • Materiality Constraint
    The term materiality refers to an accounting constraint that is used to determine the relative importance or value of an item to one of the company's financial statements. If an item is not deemed significant enough to influence the decision-making process of an individual examining the company's financial statements, then that item is not considered material.
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