The prudence concept ensures that expenses and liabilities are noted as soon as incurred but revenue is documented only when attained (Business Dictionary). It ensures that income is not overstated whilst expenses and liabilities are not underestimated, thereby making certain that there is a ‘degree of caution’ in implementing policies whilst maintaining going concern for the company (ACCA, 2014). However, precipitated by the financial crisis in 2008, several accounting academia have scrutinised prudence as an inadequate way of assessing assets and income because of its rigidity in undervaluing them (HMRC, 2013). Contrastingly, some adopt the consensus that the demotion of the concept to ‘desirable’ quality in financial reporting as opposed to a core concept in the FRS 18 (Christodoulou, 2010) inevitably leading to the absence of prudent transactions by bank accountants, consequently causing the fall of the economy. Whilst other traditionalist critics such as The Chartered Financial Analyst (CFA) argue that exercising prudence allows for a lack of neutrality in reporting (ACCA, 2014), some financial analysts such as Tim Bush and Eumedion argue that prudence rightfully coordinates the interest of shareholders with the objectives of management (Macuica, 2015).
Traditionally, prudence was viewed as a key concept in the Conceptual Framework as conveyed by Van Hulle in Prudence: a principle or an attitude?, a necessity in the Fourth EU Directive which “wanted to give prudence an important place” (Van Hulle, 1996). Nevertheless, in 2010 the IASB and FASB replaced prudence with the neutrality concept as a key characteristic in delivering an honest illustration of company information critical to decision-makers. The IASB argued that prudence was still prevalent in the revised accounting standards (Omiros, n.d.) but its presence as fundamental influenced the neutrality of financial reports. Professional investors such as the CFA echo the argument presented in Omoris’ paper, positing the quality of information is impaired as it allows for subjective estimates by management (ACCA, 2014). According to Reed’s Investors oppose prudence in reporting, in a survey conducted in 2014 by CFA’s members, only 31% preferred prudence in financial information, stating they would have to adjust data to cater for “conservative bias” thereby implying, the CFA is resistant to the inclusion of the prudence concept. The hesitance is further reiterated by Hans Hoogervorst, Chairman of IASB


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