Question

Accounting is rooted in conservatism. By ‘conservatism’ I do not mean adherence to any political ideology, I mean a tendency to err on the side of caution when recording Accounting Transactions. This means in regards to estimates you shouldn’t record too much revenue or too little expense. What is the rationale behind this concept? How could failing to adhere to it harm investors and other users of financial information?

What are some thoughts on this from a Christian perspective?

Answer 1

In Accounting, there are accounting principles and conventions for the proper recording of the monitory transactions. Conservatism is one of such conventions that says while recording uncertain or incomplete or partly completed accounting transaction or transactions that requires estimation or judgements, choose a value out of few values, which gives minimum loss or damages in the most unfavourable condition.ie. choosing the safest value.

The reason for this convention is that the profit or revenue shall never be over stated in the financial statements.Once we raise a claim of profit in the financial statements, it should be lawfully and truly backed by proper verification and consideration. There should be adequate provision for the exepected losses. Because the interested users deeply depend and believe the information conveyed by the financial statements. The failure to adhere with the accounting principles and conventions will badly affect the interests of investors and other stake holders. Because they relay on the financial statements and invest their hard earned money by believing the financial position displayed by the financial statements. In order to protect the interests of the stake holders, we have to adhere with the accounting principles and conventions.

The Christianity says about love. Love every one including your enemies.do good to everyone. Knowingly or unknowingly don't harm anyone. Jesus died to save other from the punishment of their sins. Conservatism is also aims to avoid the potential damages to the stakeholders.