The Role of Prudence in Financial Reporting: IFRS versus Directive 34

Abstract

Abstract The conceptual framework represents a coherent system of concepts which arise from a goal. Without a conceptual framework, “the bad accounting practices would triumph over the good accounting practices”. Prudence, one of the oldest and the most well-known accounting concepts, although eliminated from the accounting conceptual framework in 2010, continues to draw attention. At an international level, opinions are divided. Each of the two accounting models, continental and Anglo-Saxon, have their say. Therefore, prudence should be maintained within the conceptual framework, according to the French Accounting Standards Authority, while the Australian Accounting Standards Board (AASB) disagrees with its reintroduction. The discussions related to the reintroduction of prudence within the conceptual framework are concentrated either around the idea of prudence, but without a conservative basis, or around the idea of conservatism. However, starting from the idea that a cautious attitude in financial reporting is justified by the need to protect the investor's interests of the reporting entity, in the past years a number of decisions were taken both at the European and international level. The motivation for choosing this topic resides precisely in the novelty of the subject. We believe that the differences between the two points of view, the traditionalist one pertaining to the European Union, on the one hand, and the progressive one corresponding to IASB, on the other hand, in terms of the role of prudence in accounting, represents a subject of research.