What does conservatism mean in accounting? What are some of the ethical issues of selecting accounting principles for a company? Accountants apply the convention of conservatism when analyzing economic events and recording them. Do you believe accountants have been properly conservative in the past few years with financial statement presentation? Why?
What does conservatism mean in accounting?
An old definition in accounting defines conservatism by the adage "anticipate no profit, but anticipate all losses" (Bliss 1924). This concept results in an asymmetrical treatment of revenue and expense, but the effect is to represent the results of financial operations in the most conservative view. The concept is important for those who rely on independently prepared financial statements including shareholders, potential investors, lenders, taxing authorities, regulatory agencies and others.
Because the income statement seems to be the most important part of the financial statements for the groups listed above, conservatism will tend to only report revenue when it is deemed collectible and verifiable whereas expenses and losses may be reported only when probably. One could say that that standards applied to recognition of revenue are more ...
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