Hristina Oreshkova


In support of the critical analysis targeted at substantiating the necessity of reintroducing “prudence” in the Conceptual Framework for Financial Reporting (CF), that is the primary author’s goal, the article provides further results as well as views and arguments, based on research, provoked by the International Accounting Standards Board’s decision to revise the CF (in September 2010) and remove “prudence” in favour of “neutrality” regarded as a qualitative characteristic. The author’s aim is not to discuss the role of the CF as a whole, or its objectives, but to contribute to the current debate on a complicated and highly controversial issue, raised in the Discussion Paper (DP), followed (in January 2014 and May 2015) by the Exposure Draft (ED) containing proposals for a revised CF.The thesis held by the author, both before and now, is that for a considerable number of reasons it is imperative to restore “prudence” in the CF, subjected to revision at the moment (and yet expected) as an introduction to thnternational Accounting Standards (IAS)/International Financial Reporting Standards (IFRS), with a clearly defined content of its definition in order to avoid misinterpretation or misunderstanding, which, in my view, will not impair “neutrality”, but will support it.
On the basis of my long-lasting research alongside the thorough observation of the regulatory process, I would argue that as a supranational body, developing the accounting norms for many business entities operating in the EU and elsewhere, the EU accounting standards setter, who is responsible for the ambiguities or at least misconception, due to its prerogatives, has not been consistent in its policy with regard to prudence over the years. Probably one major reason is the influence of political, institutional and other factors in the global process of convergence. The development and deliberations as of December 2016 and January and February 2017 as to the revision of the CF have convincingly confirmed that once more.


Financial reporting; prudence; conservatism; neutrality; hidden reserves; deliberate bias; transparency

Full Text:



Accounting Principles Board (APB). (1970). Accounting Principles Board Statement No. 4, Basic Concepts and Principles Underlying Statements of Business Enterprises (New York: AICPA).

Ahmed, A. S., K. B. Bruce, R. M. Morton, and M. Stanford-Harris. (2002).The role of accounting conservatism in mitigating bondholder-shareholder conflicts over dividends policy and in reducing debt costs. The Accounting Review 77(4), pp. 867–890.

Artsberg, K., and Nilsson, C. (1993). Accounting and taxation: examining the difference between state and market claims on accounting, in: K. Artsberg, A. Loft and S. Yard (Edition) Accounting Research in Lund, pp. 25-41 (Lund: Lund University Press).

Association of Chartered Certified Accountants (ACCA). (2012). The future of financial reporting: global crisis and accounting at a crossroads, A discussion paper on the British Accounting and Finance Association’s Financial Accounting and Reporting Special Interest Group (FARSIG) Symposium, January 7th, 2011.

Autorité des Normes Comptables (ANC). (Décembre 2010). First Autorité des Normes Comptables (ANC) Symposium on Accounting Research.

Ball, R. and L. Shivakumar. (2005). Earnings quality in UK private firms: Comparative loss recognition timeliness. Journal of Accounting and Economics 39(1), 83–128.

Barker, R. (2001). Determining Value: Valuation Models and Financial Statements. Financial Times-Prentice Hall.

Barker, R. (2004). Reporting Financial Performance. Accounting Horizons, 18(2), pp. 157-172.

Barker, R. (2010). On the Definitions of Income, Expenses and Profit in IFRS. Accounting in Europe, (2), 1-14.

Barker, R. (2015). Conservatism, Prudence and the IASB’s Conceptual Framework (P.D. Leake Lecture). Accounting and Business Research, 45(4), pp. 514-538.

Barker, R. and McGeachin, A. (2015). Is the IASB Consistent on Conservatism? An Evaluation of the Concept and Practice of Conservatism in IFRS.’ Abacus, 51(2):169-207.

Barker, R., & McGeachin, A. (2013). Is the IASB Consistent on Conservatism? An Evaluation of the Concept and Practice of Conservatism in IFRS: Working Paper, Oxford University, Oxford.

Basu, S. (1997). The Conservatism Principle and the Asymmetric Timeliness of Earnings. Journal of Accounting and Economics, 24 (1), 3-37.

Beaver, W. and Ryan, S. (2000). Biases and lags in book value and their effects on the ability of the book-to-market ratio to predict book return on equity, Journal of Accounting Research, 38, pp. 127 – 148.

Beaver, W.H. and S.G. Ryan. (2004). Conditional and unconditional conservatism: concepts and modeling, Stanford University and New York University.

Cooper, C. (2015). Accounting for the fictitious: a Marxist contribution to understanding accounting's roles in the financial crisis, Critical Perspectives on Accounting, Volume 30, p. 63-82.

Ernst & Young. (2006). Ernst & Young (2006) IFRS: Observations on the Implementation of IFRS.

European Commission, Commission Regulation (EC) No 1126/2008 as of 3 November 2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council.

Fearnley, S. & Sunder, S. (2005). The headlong rush to global standards. The Financial Times, p. 14.

Fearnley, S. (2009). Restore prudence to accounting. The Financial Times, March.

Fearnley, S. and Sunder, S. (2012). Global accounting rules – an unfeasible aim. The Financial Times, June 3rd.

Feltham, J. and Ohlson, J. (1995). Valuation and clean surplus accounting for operating and financial activities. Contemporary Accounting Research, 11(2), pp. 689 – 731.

Financial Accounting Standards Board (FASB). (1980). Statement of Financial Accounting Concepts No. 2: Qualitative Characteristics of Accounting Information. Norwalk, Connecticut: Financial Accounting Standards Board.

Financial Accounting Standards Board (FASB). (1980). Statement of Financial Accounting Concepts No. 2: Qualitative Characteristics of Accounting Information.

Financial Accounting Standards Board (FASB). (2006). Preliminary Views: Conceptual Framework for Financial Reporting: Objective of Financial Reporting and Qualitative Characteristics of Decision-Useful Financial Reporting Information, Financial Accounting Standards Board.

Forrester, D. A. R. (1993). Eugen Schmalenbach and German Business Economics (New York and London: Garland Publishing Inc.).

Gebhardt, G., Mora, A., & Wagenhofer, Alfred. (2014). Revisiting the Fundamental Concepts of IFRS. Abacus: A Journal of Accounting, Finance and Business Studies, 50 (1), 107-116.

Haller, A. (2003). Accounting in Germany in: P. Walton, A. Haller and B. Raffournier (Editions) International Accounting, 2nd edition (Thomson Learning).

Haller, A. and Eierle, B. (2004). The adoption of German accounting rules to IFRS: a legislative balancing act, Accounting in Europe, 1(1), pp. 27-50.

Heidhues, Eva and Patel, Chris. (1988). Anglo-American Accounting Biases in the Rush towards Convergence: The Case of Germany.

Hellman, N. (2008). Accounting Conservatism under IFRS. Accounting in Europe, Vol. 5, No. 2, pp. 71-100.

Hendriksen, E. S. (1982). Accounting Theory, 4th edition (Homewood: Irwin).

Hoogervorst, H. (2012). Dispelling myths about IFRS: Introductory remarks by Hans Hoogervorst, Chairman of the IASB, A Speech at the Opening of the IFRS Foundation Regional Office in Asia-Oceania in Tokyo.

Hoogervorst, H. (2012). The Concept of Prudence: dead or alive? FEE Conference on Corporate Reporting of the Future. Brussels, pp. 1-7.

Hoogervorst, H. (2013). The search for consistency in financial reporting. A Speech at the CeFARR, E&Y Cass Business School, London, pp. 1-8.

Hoogervorst, H., Clark, P. & Knubley, R. (2014). IFRS Foundation, International Financial Reporting Standards Conceptual Framework, December 3rd.

Huerta de Soto, J. (2009). Translated by Melinda A. Stroup. Money, Bank Credit, and Economic Cycles, (2nd Edition). Ludwig von Mises Institute. Auburn Alabama.

IASB IFRS Foundation (July 2013). Discussion Paper (DP/2013/1) ‘A Review of the Conceptual Framework for Financial Reporting’.

ICAEW, Economia (2015); available at:

IFRS Foundation IASB Staff Paper Conceptual Framework: High level overview of feedback on the Discussion Paper (2014).

IFRS Foundation IASB, IASB Meeting, Staff Paper as of September 2016, Project Conceptual Framework, ‘Asymmetry in treating gains and losses’, IFRS Agenda ref 10D.

IFRS Foundation IASB: IASB Meeting Staff Paper as of February 2017 Project Conceptual Framework.

Imam, S., Barker, R. and Clubb, C. (2008). The Use of Valuation Models by UK Investment Analysts. European Accounting Review, 17(3), pp. 503-535.

Institute of Chartered Accountants in England and Wales (ICAEW) Economia, (July, 2015). Perspective on prudence, Lesley Meall looks at the debate.

International Accounting Standard Board (IASB) (January 2017). IASB Staff Paper, Effect of Board redeliberations on the Exposure Draft Conceptual Framework for Financial Reporting Proposals (the Exposure Draft), The International Accounting Standard Board’s (the Board) tentative decisions.

International Accounting Standards Board, International Accounting Standards Committee Foundation. International Accounting Standards Board (2006a) Preliminary Views on an improved Conceptual Framework for Financial Reporting: The Objective of Financial Reporting and Qualitative Characteristics of Decision-useful Financial Reporting Information. Discussion Paper, July 2006 (London: International Accounting Standards Committee Foundation).

International Accounting Standards Board, International Accounting Standards Committee Foundation. International Accounting Standards Board (2006b) International Financial Reporting Standards 2006 Bound Volume (London: International Accounting Standards Committee Foundation).

Koleśnik, K. (2013). The Role of Culture in Accounting In the Light of Hofstede’s, Gray’s and Schwartz’s Cultural Dimensions Theories – A Literature Review, Financial Internet Quarterly „e-Finanse” vol. 9, No. 3, pp. 33-41.

Lara, J. M. G. and Mora, A. (2004). Balance sheet versus earnings conservatism in Europe. The European Accounting Review, 13(2), pp. 261-292.

Mackintosh, Ian. (13th August 2014). IFRS Foundation Conference, Johannesburg: Are truly global standards achievable?

Mackintosh, Ian. (23rd June, 2014). IFRS Foundation Conference, London: Turning back the clock?

Milanova, E. (2012). Accounting aspects of anti-cyclical policy of the banks in Bulgaria”, Jubilee International Scientific Conference: ‘Crisis and Economic Growth’, UNWE, Sofia, University Press, pp. 111-119.

Narayanan, S. and Burkart, M. (2005). The Role of Accounting Conservatism in a well-functioning Corporate Governance System, pp. 1-16. URI:

Oreshkova, Hr. (2014). Current Fundamental Issues of Corporate Financial Reporting: Past Lessons in Favor of the Future. Global Business Conference 2014 Proceedings: Questioning the Widely-held Dogmas, Dubrovnik, Innovation Institute, Zagreb, pp. 277-291.

Oreshkova, H. (2013). The crisis and the future of financial reporting: Global financial reporting standards – reality or utopia, UNWE: Economic Alternatives, 2013, Issue 2, pp. 50-75.

Paton, W. and Littleton, A. C. (1940). An Introduction to Corporate Accounting Standards (American Accounting Association Monograph No. 3).

Penman, S. H. and Zhang, X-J. (2002) Accounting conservatism and the quality of earnings, and stock returns, The Accounting Review, 77(April), pp. 237 – 264.

Quire, C. D. (1965). Book review of Eugen Schmalenbach, Dynamic accounting, The Accounting Review, 40 (April), pp. 511-513.

R. Z. Wang. (2009). Accounting conservatism, Victoria University of Wellington, A thesis for the degree of Doctor of Philosophy in Accounting, pages 1-198.

Richard, J. (2005), “L’Union Européenne mise aux normes Américaines: Une comptabilité sur mesure pour les actionnaires”, Le Monde diplomatique, Bulgares édition, no. 1, pp. 24-25.

Richard, J. The IFRS are both obsolete and dangerous. University of Paris Dauphine. CREFIGE: IFRS... Jacques Richard.

Ryan, S. G. (2006). Identifying conditional conservatism. European Accounting Review, 15(4), pp. 511-525.

Schmalenbach, E. (1959). Dynamic Accounting, translation by G. W. Murphy and K. S. Most of the 12th edition of Dynamische Bilanz (London: Gee and Company (Publishers) Ltd).

Shroff, Pervin K., Venkataraman, R., & Zhang, S. (2004). The Conservatism Principle and the Asymmetric Timeliness of Earnings: An Event-Based Approach. University of Minnesota Working Paper, 1-50.

Sterling, R. R. (1967) Conservatism: the fundamental principle of valuation in traditional accounting, Abacus, 3(2), pp. 109–132.

Sterling, R. R. (1970). Theory of the Measurement of Enterprise Income: University of Kansas Press.

Tracey, E. (2015). Discussion of ‘Conservatism, prudence and the IASB's conceptual framework’ by Richard Barker, Accounting and Business Research, Vol. 45, No. 4, 539–542.

Vera Palea and Paolo Pietro Biancone, 2015, Which Financial Reporting Standards Does the European Union Need? Working Paper Series, The Department of Economics and Statistics “Cognetti de Martiis” publishes research papers authored by members and guests of the Department and of its research centers.

Watts, R.L., (2003a). Conservatism in accounting Part I: Explanations and implications. Accounting Horizons, 17 (3), 207–221.

Watts, R.L., (2003b). Conservatism in accounting Part II: evidence and research opportunities. Accounting Horizons, 17 (4), 287–301.

Zorgniotti, J. The Chairman of the Superior Council of the Ordre des experts-comptables (OEC), (December 2010). Turn accounting into a meaningful art’, The First Symposium on accounting research, organised by the Autorité des normes comptables (ANC), Paris, 2010.



  • There are currently no refbacks.

Print ISSN 1805-997X, Online ISSN 1805-9961

(c) 2016 Central Bohemia University