Conservatism as a Defining Principle for Accounting

Stephen Penman
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Stephen Penman: Columbia Business School, Columbia University, USA

The Japanese Accounting Review, 2016, vol. 6, 1-16

Abstract: The removal of “conservatism” as a qualitative characteristic from the Conceptual Framework of the IFRS has met with considerable resistance. This paper argues that conservatism has a role in accounting, but not as a qualitative characteristic. Rather, it serves as a defining principle for how accounting is to be done. It is thus central to resolving “recognition” and “measurement” issues in the Conceptual Framework, issues that determine what actually goes into the balance sheet and income statement but issues on which the Framework is particularly weak. As a “prudent reaction to uncertainty,” conservatism supplies the investor with information about the payoffs to investments, particularly the uncertainty involved in those investments.

Keywords: Accounting Policy; Conservative Accounting (search for similar items in EconPapers)
JEL-codes: M41 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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