1. Financial reporting - accounting concepts.
The accounting practice of recognising income and assets only when they are reasonably certain, whilst recognising expenses and liabilities whenever they are probable.
Prudence is not an excuse for accounting manipulations such as 'big bath' provisioning.
- Neither overstate, nor understate
- Neutrality is supported by the exercise of prudence.
- Prudence is the exercise of caution when making judgements under conditions of uncertainty.
- Prudence does not allow for overstatement or understatement of assets, liabilities, income or expenses.
- IFRS Conceptual Framework project summary, March 2018
In this context, conservatism is an alternative term for prudence.
2. Risk management and strategy.
In risk management and strategy, 'prudent' approaches are conservative ones, reflecting a relatively low risk appetite.