Conservatism: The Fundamental Principle of Valuation in Traditional Accounting *

Abstract

Accounting has always been a highly practical discipline. Thus, the most ancient and probably the most pervasive principle of accounting valuation is conservatism. This chapter considers conservatism to be the most influential principle of valuation in traditional accounting. For example, A. W. Johnson and O. M. Kreigman take an ‘anti-ultraconservative’ view in their chapter on accounting theory. The circumstances surrounding the use of accounting clearly indicate the need for accounting standards. Accounting is a discipline without any cohesive, unified theory of valuation. That is, the fundamental principle is conservatism, and, therefore, a conservative value on the more important statement is more desirable than a conservative value on a less important statement. Cost is not a fundamental tenet of accounting; instead, it is a derivative of the conservatism principle of valuation. The practice is governed by conservatism, but the authors deny the principle of conservatism and thus are left in the untenable position of defending what they deny.