The Prudence Concept Of Financial Report

2003 Words9 Pages
Essay The prudence concept can sometimes be overused in the preparation of financial reports. The implication of this is that it prevents the ability in trying new things as preparers of financial statement becomes overly cautious and do not create room for risk and spontaneity. This paper would therefore evaluate how the prudence concept can be used to provide a reliable and faithfully represented financial report or used to manipulate the financial report thereby taking away its fundamental qualities which is relevance and faithful representation (IFRS, 2014){16 }. The effect of this misrepresentation is that users of financial report would find financial report useless for making decisions and financial report would become questioned and untrusted. This paper would be sub-divided into four sections. The first section would argue against prudence, this argument would be supposed with examples and relevant illustration. Preceding that section would be an argument for prudence, which would also follow the same pattern as the first section. The third section would evaluate the conceptual framework from the view of prudence and neutrality. The final section would be a recommendation and conclusion. According to the Pre-2010 Conceptual Framework Paragraph 37, Prudence was defined as the “inclusion of a degree of caution in the exercise of judgement needed in making the estimates required under condition of uncertainty, such as that asset and income are not overstated
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