The Conceptual Framework for Financial Reporting identifies two fundamental underlying assumptions that guide the preparation and presentation of financial statements:

1. Accrual Basis of Accounting:
   Financial statements are prepared on an accrual basis, meaning that transactions and events are recognized when they occur, not when cash is received or paid. Revenues and expenses are recorded in the period to which they relate, providing a more accurate representation of a company’s financial performance and position during the period.
2. Going Concern Assumption:
   Financial statements are prepared on the assumption that the entity will continue to operate for the foreseeable future. This means that the company is not expected to liquidate or significantly curtail its operations. Assets and liabilities are recorded with the expectation that the business will continue its normal activities.