An accounting convention is a common practice used as a guideline when recording a business transaction. It is used when there is not a definitive guideline in the accounting standards that govern a specific situation. Thus, accounting conventions serve to fill in the gaps not yet addressed by accounting standards.
As the range and detail of accounting standards continue to increase, there are fewer areas in which accounting conventions can still be used. However, a large number of accounting conventions are needed in industry-specific accounting, since many of these areas have not yet been addressed by the accounting standards.
Accounting conventions are a necessary part of the accounting profession, since they result in transactions being recorded in the same way by multiple organizations. This allows for the reliable comparison of the financial results, financial position, and cash flows of many organizations.
Accounting conventions may change over time to reflect shifts in the preponderance of general opinion regarding how to deal with a transaction.