Skip to content

ACCA Applied Knowledge · Financial Accounting · Qualitative characteristics of useful financial information

The 2018 IASB Conceptual Framework discusses prudence in relation to neutrality. Which statement is consistent with that Framework?

Under the current Conceptual Framework, prudence is cautious judgement under uncertainty that supports neutrality. It does not permit deliberate understatement of assets or income or overstatement of liabilities or expenses, because that would make the information biased and less faithfully representative.

  1. APrudence is the exercise of caution under uncertainty and supports neutrality, but does not allow deliberate understatement of assets or incomeCorrect
  2. BPrudence requires liabilities and expenses to be deliberately overstated to build hidden reserves
  3. CPrudence is a separate qualitative characteristic that overrides faithful representation
  4. DPrudence means gains must always be recognised before losses

Explanation

The Framework says prudence is the exercise of caution when making judgements under uncertainty, and that it supports neutrality. It does not allow deliberate understatement or overstatement of assets, liabilities, income or expenses. Option B describes the biased approach that is rejected.

Did you get it right without looking?

One question tells you little. A timed set on Qualitative characteristics of useful financial information shows your real accuracy, how long you take and where you lose marks.

Practise Qualitative characteristics of useful financial informationFree diagnostic mock

More Qualitative characteristics of useful financial information questions