Prudence in Accounting
In accounting, prudence was long considered one of the fundamental accounting concepts, determining the time for revenue recognition. The rule of prudence meant that gains should not be anticipated unless their realisation was highly probable. However, recent developments in Generally Accepted Accounting Principles have led academic critics to accuse the international standard-setting body IASB of abandoning prudence. In the British reporting standard FRS 18, prudence, along with consistency, was relegated to a "desirable" quality of financial information rather than fundamental concept. Prudence was rejected for IFRS because it was seen as introducing bias to accounts, which should be neutral.
In a 2011 report on the late-2000s financial crisis, the British House of Lords bemoaned the demotion of prudence as a governing principle of accounting and audit. However, their comments were disputed by some leading practitioners.
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Famous quotes containing the words prudence and/or accounting:
“The one prudence in life is concentration; the one evil is dissipation: and it makes no difference whether our dissipations are coarse or fine; property and its cares, friends and a social habit, or politics, or music, or feasting. Everything is good which takes away one plaything and delusion more, and drives us home to add one stroke of faithful work.”
—Ralph Waldo Emerson (1803–1882)
“I, who am king of the matter I treat, and who owe an accounting for it to no one, do not for all that believe myself in all I write. I often hazard sallies of my mind which I mistrust.”
—Michel de Montaigne (1533–1592)