Question

What do you think are the main pros and cons of conservatism in financial accounting? (25-70 words)

Answer 1

Pros :

1) It provides accurate measurements and valuation of associated risk into the evaluation period.

2) Determination of minimum outcomes in respect of shareholder's interest.

3) It is a policy of playing safe, thus it provides a measure of net realizable value to book value .

Cons:

1) Underestimation of possibilities of future gains .

2) Immediate reflection by write down the value of assets

3) Provisions are mandatory for every liability, weather it is certain or uncertain. Every looses are recorded in contingencies.