Chapter 8: The Concept of Prudence in Accounting

This chapter explores the concept of prudence in accounting from several different perspectives. In particular, we discuss the elimination of prudence from the conceptual framework of the International Accounting Standards Board in 2010 and its reinstatement in 2018. We also explore the tension between a cautious view of prudence and an asymmetric view of prudence. Finally, we discuss historical debates concerning the concept of prudence in philosophy, legal theory, and economics. In specific terms, we address whether prudence constitutes a moral virtue or whether it is merely a technique for deciding between alternative courses of action. The primary argument of the chapter is that prudence has been an important moral virtue and a component of commercial and accounting practice throughout history, even though accounting standards setters have now relegated it to secondary importance.