UK Qualitative characteristics of accountancy !!

[ojames]

Hello everybody !
I've got a little question that i am having trouble to answer : The concept of prudence is not clear cut and can conflict with neutrality ! I have been reading articles about this clash between prudence and neutrality but i still don't fully understand what is the main reason for this !
Hope somebody can help me !
Thank you for you time

 

[iNinjaNotes]

Well I believe your looking at US GAAP fundamental principles.
I use PE GAAP AND IFRS, but I did a little research on what you were talking about.

Prudence seems very similar to what is known to me as conservatism. The point is to not overstate the position or reality of your company through the accounting books. Essentially you should be skeptic about being aggressive when reporting revenues, income and assets.

Neutrality is entirely different as management should be "neutral" about completing the financial statements. There can't be any bias towards any stakeholders like shareholders, management, directors and so on. So if I'm the accountant, I can't misstate restrictive ratio covenants like (current asset ratios) to be in line with what the bank requires for the loan they gave me. Because this would be biased towards bank stakeholders while shareholders are purchasing stock based on these inflated numbers.