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

Under the 2018 Conceptual Framework, which statement about prudence and the qualitative characteristics of useful financial information is correct?

Prudence is the exercise of caution when making judgements under uncertainty and it supports neutrality. It does not permit deliberate understatement of assets or income, or overstatement of liabilities or expenses. It is not itself a fundamental or enhancing qualitative characteristic.

  1. APrudence is a fundamental qualitative characteristic that requires assets to be understated
  2. BPrudence is the exercise of caution under uncertainty and supports neutrality; it does not allow deliberate understatement of assets or incomeCorrect
  3. CPrudence has been removed and the Framework says nothing about caution when making judgements
  4. DPrudence is an enhancing qualitative characteristic alongside comparability and timeliness

Explanation

The 2018 Framework reinstated prudence as the exercise of caution when making judgements under uncertainty. It supports neutrality but does not imply asymmetry, so deliberate understatement of assets or income is not permitted. It is not listed as a fundamental or enhancing characteristic.

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