ACCA FR · Chapter 1 · Question 10 of 10
Which statement correctly describes how prudence is treated in the IASB Conceptual Framework?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Prudence is the exercise of caution when making judgements under uncertainty, and it supports neutrality
Explanation
The Framework reintroduced prudence as the exercise of caution when making judgements under conditions of uncertainty. It means assets and income are not overstated and liabilities and expenses are not understated. It does not allow deliberate understatement, because that would breach neutrality and faithful representation. Recognising losses but not gains is not a Framework requirement.
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