Advantages Of Conservatism In Accounting

709 Words2 Pages
bulb-icon

Recommended: Roles of conceptual framework in accounting

Accounting conservatism has been established centuries ago. Since that time to nowadays this model was successfully implemented in daily accounting practice. Many experts identify conservatism as the principle of verified information: gain should be verified before recognized, but the principal allows accelerated recognition of losses. Generally, conservatism can be explained: “anticipate no profit, but anticipate all losses” (Watts, 2003). The nature of conservatism leads to differential treatment of keys aspects of accounting: gains and losses. With a recognition of all losses and only verified revenue cash flow, conservatism ignores unverified values, for example, intangible assets, such as goodwill. This asymmetry under conservatism principle allows accountants to understate net asset and net income as a key consequence (Watts, 2003). Ross L. Watts in his article “Conservatism in Accounting. Part I: Explanations and Implications” presents a significant amount of evidence of the usefulness of conservatism in Accounting. The most crucial advantage …show more content…

It is hard to argue about its role in Accounting as well in past centuries. However, the financial world has been changed. It became more complicated and less predictable. Investors demand more reliable information. They want to see their returns if they invest money in the particular companies. All these factors require estimation of future cash inflows based on the economic situation on the market. Conservatism principles should be developed with the evolution of the financial world in order to provide required information to investors and creditors. In my opinion, the Conceptual Framework is a beginning of new era in the Accounting. Unfortunately, it is hard to say if this system works or not. The implementation of the system has just been started and it will need time to analyze and build our

Show More
Related

  • IRS and Tax Regulations

    1635 Words  | 4 Pages

    The majorities of financial advisers do not have a formal accounting or tax background and thus have some challenges to overcome when reading tax returns of their clients. However they are still asked to help their clients in future planning. Since most accounting is to be done based on compliance with GAAP it would make sense to think that tax accounting should also be done this way, however both the IRS and the courts have stated that compliance with GAAP is of little significance when dealing with the objectives of tax accounting. The objectives of both accounting methods are simply different, because the primary goal of financial accounting is to provide useful information to all stakeholders and the primary goal of the income tax system is the equitable collection of revenue. Because of these differences it can be said that the users of accounting information are different for both methods. The assumption for financial accounting is the going-concern and the tax accounting system ignores this assumption. These differences give us the concept of timing differences and permanent differences. Understanding...

    Read More

  • Understanding Conservatism Constraint in GAAP

    717 Words  | 2 Pages

    Conservatism constraint is the “general concept of recognizing expenses and liabilities as soon as possible when there is uncertainty about an outcome, but to only recognize revenues and assets when they are incurred”. In other words, if there is doubt about incurring a loss, one should incline to record it. However, if there is doubt about a gain, one should not be inclined to recognize until it is incurred. Moreover, costs should be complemented with the revenue that generates the work.

    Read More

  • Using Biblical Principles For Making Wise Business Decisions

    1993 Words  | 4 Pages

    Marshall, D.H., McManus, W.W. & Viele, D.F. (2011). Accounting: What the numbers mean (10 ed). New York, NY: The McGraw-Hill Companies, Inc.

    Read More

  • Public Versus Private Accounting

    999 Words  | 2 Pages

    Lucas Pacioli was the first to describe a system of debts and credits in accord with journals and ledgers in 1494. These basics came together to be the concoction for what is known as accounting. Since the formal establishment of accounting in 1494, the field has expanded as the demands of the ever-changing economy became greater. The industrial revolution created the first jump in the field forcing the creation of sectors within. Since this first creation of sectors, accounting as a field has been creating more specific sects to accommodate a large variety of areas. The most common and large sects created this far include public and private accounting. Although both sects carry the same basis for their work, the variation between the two lies in their demographic, demands, and decoration.

    Read More

  • Accounting profit and True Profit

    996 Words  | 2 Pages

    Olusegun Wallace, R. 1996. The Development of Accounting Research in the UK. In: Cooke, T. and Nobes, C. eds. 1997. The Development of Accounting in an International Context. London: Routledge, pp. 218-254.

    Read More

  • Budget Analysis

    1842 Words  | 4 Pages

    Marshall, M.H., McManus, W.W., Viele, V.F. (2003). Accounting: What the Numbers Mean. 6th ed. New York: McGraw-Hill Companies.

    Read More

  • Financial vs. Managerial Accounting

    1091 Words  | 3 Pages

    Albrecht, W. S., Stice, J. D., Stice, E. K., & Skousen, k. F. (2002). Accounting Concepts and Applications. Cincinnati: South-Western.

    Read More

  • A Critical Component Of Any Accounting Theory Course

    1218 Words  | 3 Pages

    The conceptual framework identifies the primary users of accounting information as investors, creditors, and those who advise them. It also assumes a “prudent” investor; that is, an investor who takes the time to become reasonably well informed with respect to accounting theory and practice. Discuss this concept with respect to the current economic environment. Are different groups of investors “prudent”? According to the conceptual framework, the potential users of financial statements are investors, creditors, suppliers, employees, customers, governments and agencies, and the general public (Financial Accounting Standards Board, 2006).

    Read More

  • Jet Airways

    1939 Words  | 4 Pages

    Accounting is the pillar of every company to measure its growth, loss, revenue , capital, its really specify the real terms in foam of figures and sometimes in tables, in accounting there are certain rules are obtained to make more accuracy while playing with figures.

    Read More

  • Importance Of Accounting History

    754 Words  | 2 Pages

    Accounting has been a living part of history since the Neolithic period and remains a prevalent and ever-evolving profession still to this day. This essay therefore proposes to look at the significance and role of history specifically related to the accountancy field. In order to substantiate this claim of the importance of accounting history, numerous benefits of accounting history will be presented. Factors such as the use of historical research and its availability thereof to constantly develop accounting policies will be discussed as well as how historical accounting practices can be used to understand current practice and assist in the training of individuals in the accounting field. Lastly, the importance of history in the development

    Read More

  • The Purpose of Accounting

    632 Words  | 2 Pages

    The purpose of this document is to describe the nature, purpose and scope of accounting and it deliberately explains the details of each category in accounting. Accounting involves in preparing financial documents of an entity by analyzing, verifying, and reporting this records. It emphasizes its major characteristic role in field of banking and finance, with a mixture of supportive sub topics.

    Read More

  • Essay On Challenges Of Accounting

    1025 Words  | 3 Pages

    Accounting dates back as far as first centuries, is the language of business. As everything has gone through many changes, accounting has also changed many times through out the centuries. It went from the use of abacus to the most advanced softwares, and computers. With these drastic improvements nowadays accounting, financial accounting and management are facing big challenges. From the presentation of the reports to communication to the users, investors, and owners, the accounting field has gained totally a new shape from two decades ago. Today with the dynamic change in every aspect of life, the accounting field has to act fast and be able to adapt these new changes and challenges in order to survive.

    Read More

  • Essay For Accounting And Finance

    548 Words  | 2 Pages

    Accounting aids the government and organisations in decision making for their financial stability. This numerical data helps solve real life problems and contributes to how the economy and businesses perform.

    Read More

  • The Importance Of Accounting In Our Modern Society

    2459 Words  | 5 Pages

    Accounting is so important in our modern society. It serves a variety range of place in our society. It serves a variety range of place in our soceity, from school to hospital, from business firm to government agencies. It's also the main force in regulation of taxation and industrial activity. It serves a great aspects on the development of mass-production systems, any way, it's a very important term in our modern soceity.

    Read More

  • Accounting Regulatory Bodies Paper

    721 Words  | 2 Pages

    The success of a company is very dependent upon its financial accounting. In accounting there are numerous Regulatory bodies that govern the accounting world. These companies are extremely important to a company because they set the standards when it comes to the language and decision making of a company. These regulatory bodies can be structured as agencies, associations, commissions, and boards. Without companies like the Security and Exchange Commission (SEC), The Financial Accounting Standards Board (FASB), the Governmental Accounting Standards Board (GASB), Internal Accounting Standards Board (IASB), Internal Revenue Service (IRS), and other regulatory bodies a company could not make well informed decisions. In this paper the author will look at only four of them.

    Read More

More about Advantages Of Conservatism In Accounting

Open Document