ACCA Strategic Professional · Strategic Business Reporting (International) · The applications, strengths and weaknesses of the accounting framework
Under the 2018 Conceptual Framework for Financial Reporting, which statement best describes the role of prudence in the qualitative characteristic of faithful representation?
Prudence is the exercise of caution under uncertainty and supports neutrality in faithful representation. It does not permit deliberate understatement of assets or income, or overstatement of liabilities, because that would make information biased rather than neutral.
- APrudence is a separate primary qualitative characteristic requiring assets to be understated
- BPrudence supports neutrality by exercising caution under uncertainty, but does not allow deliberate understatement of assets or overstatement of liabilitiesCorrect
- CPrudence requires all expected losses to be recognised but prohibits recognising any expected gains
- DPrudence has been removed entirely so judgements under uncertainty need no caution
Explanation
The 2018 Framework reinstated prudence as the exercise of caution when making judgements under uncertainty, supporting neutrality. It does not permit asymmetry such as deliberate understatement of assets or income. Option C describes the asymmetric approach the Framework rejects.
Did you get it right without looking?
One question tells you little. A timed set on The applications, strengths and weaknesses of the accounting framework shows your real accuracy, how long you take and where you lose marks.
More The applications, strengths and weaknesses of the accounting framework questions
- A critic argues that the Conceptual Framework is weak because it is not itself an IFRS Accounting Standard. Which response is correct under …
- Harlow Co holds a portfolio of bonds. Its business model is to hold the bonds and collect contractual cash flows, and it argues that fair va…
- Lumen plc must choose its accounting policy for a new type of transaction on which no IFRS Accounting Standard specifically applies. Which a…
- Orion plc's finance director asks the financial controller to classify a $3m development cost as an asset even though the criteria in IAS 38…
- Which of the following is a current value measurement basis under the 2018 Conceptual Framework, as opposed to a historical cost basis?
- Under the 2018 Conceptual Framework, which statement best describes the role of the concept of prudence?