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Among the constraints listed in the lesson, Prudence has a distinct asymmetric flavour in how it treats gains and losses. Which statement best captures the Prudence constraint as understood in accounting practice?
Answer & Solution
Correct answer: C.
1. Prudence is one of four constraints listed by the lesson.
2. The classical rule is: anticipate no profits but provide for all possible losses.
3. This asymmetric treatment is the heart of the prudence constraint.
4. Symmetric recognition, deferral until court orders, and immediate recognition of unrealised gains all violate prudence.
_Source: ICSI CS Executive Paper 5 (Corporate and Management Accounting) — Lesson 1 & 2: Introduction to Financial and Corporate Accounting, pp. v–vii and x._
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