IFRS: Prudence concept to be reintroduced?

The IFRS and IASB are looking to reinstate the philosophical concept of prudence despite former resistance against the idea.

The IASB, which is the independent standard-setting body of the IFRS, is working on updating its structures in a bid to allow further access to information and help on measurement, presentation and disclosure. It is hoped that this will be completed and in use by 2015.

Part of this update includes the debate surrounding the reintroduction of prudence and it is expected that a decision should be made on this issue soon.

Michael Prada, chair of the IFRS Foundation who oversees the work that the IASB does without being involved in the technical aspects, told Accountancy Age that he believes that prudence should be reintroduced as a standard element of conceptual framework, noting that it allows an element of comfort and trust.

"I am a little bit uncomfortable that these philosophical issues are instated for other issues. People think true and fair view is a prudent approach, and if it is easier to make people comfortable by reintroducing a philosophical concept, then why not," Mr Prada said.

The IASB has been urged to reinstate prudence to the greatest extent following a reference to the concept was dropped from the IASB’s structure in 2010 in favour of neutrality.

Chairman of the IASB, Hans Hoogervorst, has so far opposed the reintroduction of prudence, stating that the foundations of it are still and always have been used within the IFRS. However, Mr Prada suggested that due to recent growing criticism from regulators, politicians and investors, it would be willing to reconsider the issue.

Following Mr Prada’s interview, the IASB’s board meeting in May showed that within the update they had provisionally agreed to to reintroduce prudence into their structure.