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ACCA Strategic Professional · Strategic Business Reporting (International) · Discussion of issues in financial reporting

Delmar Ltd's board wants to defer recognising a restructuring cost, claiming it is being 'prudent' in the opposite direction by not showing a loss until next year. Which statement is consistent with the Conceptual Framework's treatment of prudence?

Prudence is the exercise of caution when making judgements under uncertainty. It supports neutrality but does not require or allow deliberate understatement of assets or income, or overstatement of liabilities or expenses, so deferring a loss that qualifies for recognition would not be justified by prudence.

  1. APrudence is a fundamental characteristic requiring losses to be recognised earlier than gains
  2. BPrudence means deliberately understating assets and overstating liabilities
  3. CPrudence is the exercise of caution under uncertainty, supports neutrality, and does not allow deliberate asymmetry or deferral of lossesCorrect
  4. DPrudence is excluded entirely and has no role in judgements under uncertainty

Explanation

The 2018 Framework reinstated prudence as caution when making judgements under uncertainty, supporting neutrality. It does not imply asymmetry, and it does not permit biased understatement or deferral of costs that meet recognition criteria. Deferring a loss would breach neutrality.

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