21 November 2015
Mr Hans Hoogervorst
Chairman
The International Accounting Standards Board
IFRS Foundation
30 Cannon Street
London EC4M 6XH
Dear Hans
IASB Exposure Draft ED/2015/3 Conceptual Framework for Financial Reporting
I am pleased to submit the comments below, relating specifically to the treatment of
prudence in the conceptual framework.
Kind regards,
Richard Barker
Professor of Accounting
richard.barker@sbs.ox.ac.uk
Prudence in the Conceptual Framework
1. What is Prudence?
The term ‘prudence’ gets used in different ways, with different meanings. It is
important, therefore, to be clear about definition. In particular, there appear to
be two distinct concepts of prudence that are prominent in the debate around
the conceptual framework.
The first definition is the version described by the IASB itself – let’s call this
‘IASB Prudence’ - according to which prudence is not inconsistent with
neutrality but can instead be seen as a mechanism for ensuring neutrality, for
exercising careful judgement in ensuring that accounting is neutral. Note that
‘neutral’ can be interpreted here to mean selecting and applying measurement
attributes in a way that is free from bias. So, for example, the IASB has selected a
recoverable cost basis for inventory under IAS 2, and in that context an entity’s
accounting is neutral when this basis is applied, even though the market value of
the inventory is unrecognised if it exceeds cost, yet recognised when it falls
below. It follows that neutral accounting need not be symmetric, in the sense
that gains and losses are equally likely to be recognised (Barker, 2015).
The second definition is that which describes the more traditional interpretation
of prudence in accounting practice – let’s call this ‘Conventional Prudence’ according to which prudence is the application of a higher threshold of
verifiability for the recognition of gains than for losses. According to this
definition, prudent accounting results from asymmetry in recognition criteria
(with recognition more likely for liabilities than assets), or else from asymmetry
in the application of any given measurement attribute (with loss recognition
more likely than gain recognition).1
The application of conventional prudence results in a lower carrying amount of
net assets than the application of IASB prudence. It is important, however, to
understand the nature of this difference. In particular, it is important to address
the question of whether conventional prudence implies a downward bias in net
asset value and whether it is therefore inconsistent with neutrality.
A first observation is that conventional prudence does not mean that there
should be a systematic bias towards undervaluing all assets and overvaluing all
These two types of prudence are referred to in the research literature as, respectively,
‘unconditional conservatism’ and ‘conditional conservatism’.
1
liabilities: it is not a carte blanche for a misleading understatement of net assets.
As set out in Table 1 below, the concept of conventional prudence applies only
where there exists significant uncertainty in measurement, and even then only
when the uncertainty concerns gains as opposed to losses. ‘Uncertainty’ here
means that any carrying amount under consideration is an estimate that would
be difficult to verify, in that there is significant subjective judgement in
determining the carrying amount at the balance sheet date.2 Conventional
prudence does not in principle allow either a deliberate understatement of gains
in the absence of uncertainty or, under any circumstance, the deliberate
overstatement of losses; in each of these contexts, there is no difference in
accounting between conventional prudence and IASB prudence. Rather, the
purpose of conventional prudence is to defer the recognition of gains that are
subjectively estimated (i.e. ‘uncertain’) at the balance sheet date and that
therefore can neither be verified nor relied upon, and it is in this context only
that accounting under conventional prudence is different from accounting under
IASB prudence.
Table 1: the scope of Conventional Prudence
Uncertainty: is it difficult to verify the carrying amount?
Assets/Gains
Liabilities/Losses
No
Timely recognition
Timely recognition
Yes
Deferred recognition
Timely recognition
The test case, therefore, is when economic gains are uncertain. In this context,
net asset values under conventional prudence cannot be higher than they would
be under IASB prudence, and are likely instead to be lower. Whether or not this
difference amounts to bias depends upon how the concept of neutrality is
understood, because it is against the benchmark of neutrality that the presence
of bias is determined. Noteworthy, therefore, is that neutrality could in principle
be interpreted in at least three different ways. The first is that neutral means
that the carrying amount of an asset is an unbiased estimate of its economic
value. This is the notion of neutrality that might most commonly be applied in
domains other than accounting, but it is not the sense in which neutrality in
accounting is usually interpreted. (Neutrality does not imply a ‘full fair value’
balance sheet.) A second meaning is that recognition and measurement criteria
are applied equally to assets as to liabilities, to gains as to losses. Yet we have
Note that the concept being described here differs from the concept of realisation. While the
realisation of gains is associated with uncertainty, because unrealised gains are exposed to
changes in value, the concept here concerns the extent to which the amounts recognised in the
balance sheet can be verified. So, for example, the value of a traded equity investment is likely to
be straightforward to verify, notwithstanding that the value ultimately realised from the
investment might differ significantly from the current carrying amount. In other words, the
concept of uncertainty here concerns measurability at the balance sheet date.
2
seen already that recoverable amount fails this test, and so again this not a
helpful interpretation for accounting. Third, neutral could just mean that IFRS is
specified and applied without prejudice, without distortion that influences users
of accounts. On this view, neither IASB prudence nor conventional prudence is
biased. This is because, while each form of prudence differs in the recognition
and measurement criteria determined by the IASB, they do not differ with
respect to whether the design and implementation of accounting standards has a
distorted influence on users. Hence, while the carrying amounts could differ,
either approach may be described as being consistent with neutrality.
The key difference to explore between the two concepts of prudence does not,
therefore, concern neutrality per se, but instead whether there is a role for the
delayed recognition of gains under conditions of uncertainty. In addressing this
question, the structure of this note is as follows: first, the note reviews how the
concept of prudence in the Framework has evolved, from inception in 1989,
through revision in 2010, and how ambiguity in definition existed throughout
this period; second, it is argued that the 2015 ED ended the ambiguity, but did so
by unhelpfully identifying prudence with neutrality; third, the theoretical and
practical case for conventional prudence is reviewed; fourth, arguments against
conventional prudence are evaluated; finally, recommendations are made for the
treatment of prudence in the Framework.
2. Ambiguity in the pre-2015 Framework
In the original (1989) version of the IASB’s Framework, prudence was described
(in para. 37) as an aspect of reliability. Immediately prior to that description, in
para. 36, was a description of neutrality, which is important in setting the
context for the subsequent discussion of prudence. The full text of both
paragraphs is as follows.
To be reliable, the information contained in financial statements must be
neutral, that is, free from bias. Financial statements are not neutral if, by
the selection or presentation of information, they influence the making of a
decision or judgement in order to achieve a predetermined result or
outcome. (para. 36)
The preparers of financial statements do, however, have to contend with the
uncertainties that inevitably surround many events and circumstances, such
as the collectability of doubtful receivables, the probable useful life of plant
and equipment and the number of warranty claims that may occur. Such
uncertainties are recognised by the disclosure of their nature and extent
and by the exercise of prudence in the preparation of the financial
statements. Prudence is the inclusion of a degree of caution in the exercise
of the judgements needed in making the estimates required under
conditions of uncertainty, such that assets or income are not overstated and
liabilities or expenses are not understated. However, the exercise of
prudence does not allow, for example, the creation of hidden reserves or
excessive provisions, the deliberate understatement of assets or income, or
the deliberate overstatement of liabilities or expenses, because the financial
statements would not be neutral and, therefore, not have the quality of
reliability. (para. 37)
A first point to note is that the description of prudence in para. 37 makes a
distinction between, on the one hand, ‘the deliberate understatement of assets or
income, or the deliberate overstatement of liabilities and expenses’ and, on the
other hand, ‘the inclusion of a degree of caution in making the estimates
required under conditions of uncertainty, such that assets or income are not
overstated and liabilities or expenses are not understated.’ The first of these two
components is entirely in line with both IASB prudence and conventional
prudence, both of which rule out the deliberate understatement of assets or
income, and also the deliberate overstatement of liabilities or expenses. With
respect to the second component, however – which concerns the specific
question of the deferred recognition of uncertain gains - it is less clear whether
the 1989 Framework is an expression of either IASB prudence or conventional
prudence; it could be interpreted either one way or the other.
On the one hand, prudence might be interpreted as being consistent with timely,
neutral gain recognition. If uncertainty allows management the opportunity to
be over-optimistic in their measurement of net assets, then a requirement to be
prudent may simply be an admonition to be neutral, in the sense of not
exploiting the inherent subjectivity in applying accounting standards in order to
overstate net assets. In other words, prudence means guarding against overoptimism, and ‘caution … that … assets and income are not overstated’ simply
means taking care to ensure neutrality. On the other hand, the ‘however’ at the
start of para. 37 can be taken to qualify the meaning of neutrality in para. 36,
such that ‘caution … that … assets or income are not overstated’ but that
‘liabilities or expenses are not understated’ means that gains and losses should
be treated asymmetrically, with the possibility that a given level of uncertainty
leads to recognition of the latter but not the former. In other words, prudence
means a higher threshold of verifiability for gains than for losses, such that there
is a trade-off between prudence and timely gain recognition. In this context, it
should be noted that para. 37 does not recommend ‘caution … that … liabilities or
expenses are not overstated’ and that ‘assets and income are not understated.’
Instead, the language is explicitly concerned with an asymmetry, with the
possibility that net assets might be overstated, and implicitly therefore
unconcerned with the opposite possibility that they might be understated. This
can be seen as erring on the side of cautious understatement: if the gain is
uncertain, don’t recognise it, but recognise a loss even when it is difficult to
estimate.
The IASB’s decision, in 2010, to remove para. 37 from the Framework, and along
with it any reference to prudence, could again be interpreted in either of the two
ways just described. On the one hand, it could be viewed as a simple tidying-up
of what was always intended in the Framework. On this view, it was unhelpful
that the reference to prudence could be interpreted as an invitation towards the
biased understatement of net assets, meaning that its removal simply clarified
that the aim is neutrality. In particular, as it might have appeared that the
Framework was internally inconsistent in requiring both neutrality and bias, the
removal of this anomaly enhanced the Framework’s ostensible conceptual
clarity. On the other hand, however, the removal of prudence could be seen as
fundamentally changing the Framework, because the notion of a trade-off
between prudence and timely gain recognition was no longer entertained, and
because neutral was thereby (re)interpreted as not being (conventionally)
prudent.
It is perhaps not surprising, therefore, that there is a degree of confusion about
the interpretation of prudence, both by the IASB itself and by its stakeholders, in
both the 1989 and 2010 versions of the Framework.
3. Prudence in the 2015 ED
In contrast with this ambiguity in 1989 and 2010, however, the reintroduction of
prudence in the 2015 ED was clearly in the form of ‘IASB Prudence’. With no
explicit acknowledgement of the presence of uncertainty, the 2015
reintroduction included the statement that ‘the exercise of prudence is
consistent with neutrality and should not allow the overstatement or
understatement of assets, liabilities, income or expenses.’ This insistence that
‘prudence is consistent with neutrality,’ along with the symmetric application to
‘overstatement or understatement,’ seems to rule out the asymmetry of a higher
threshold of verifiability for recognising gains than losses.
This approach is, however, fundamentally flawed. The reason is that it
introduces a ‘concept’ into the Framework that is not really a concept at all. At
best this achieves nothing; at worst it leads to confusion. The problem is that
prudence is in substance defined in a way that adds nothing to the concept of
neutrality; as defined, prudence essentially means ‘make sure to be neutral’.
Given that the Framework defines neutrality already, there is nothing to be
gained from the introduction of an additional ‘concept’ that has no distinctive
meaning. This is not to say that neutrality and prudence mean the same thing;
indeed, neutrality is a broader concept than IASB prudence. Rather, the point is
not that the concepts are the same, but instead that there is nothing to be gained,
conceptually, by introducing the concept of prudence in addition to that of
neutrality, because it does not lead to any conclusion that would not anyway be
reached by the application of neutrality. Moreover, the presence of two terms
and definitions that lead to the same conceptual outcome invites unavoidably
fruitless attempts to understand why and how one differs from the other.
An additional concern is that, because ‘prudence’ means different things to
different people, the ‘reintroduction’ of prudence is likely to be misunderstood
as an accommodating response by the IASB to demands that the Framework
should embed prudence as conventionally understood. Such demands were
evident in numerous comment letters on the 2010 Framework revision (and see
also EFRAG, 2013). In this context, the IASB’s use of a common term to convey
an uncommon meaning is at best unhelpful. At worst, though, it signals
problems down the road, as stakeholders become aware that the reintroduction
of prudence did not actually mean the reintroduction of (conventional)
prudence.
Note that, while IASB prudence is defined in a way that adds nothing to the
concept of neutrality, conventional prudence is not. This is because the concept
of IASB prudence has no role to play in determining the nature of neutral
accounting, whereas conventional prudence can have direct implications for
whether or not to recognise economic gains. The concept of conventional
prudence therefore has the potential to influence IASB decision-making, while
IASB prudence does not.
4. Is there a role for Conventional Prudence?
If IASB Prudence is not a useful ‘concept’, the next question is whether, in theory,
conventional prudence can be considered a desirable property of financial
reporting, deserving of a place in the Framework; in other words, is there a case
for delaying the recognition of gains under conditions of uncertainty?
It is worth re-emphasising that there are two very different reasons why net
assets might be understated (Watts, 2003; EFRAG et al., 2013). On the one hand,
there may be a deliberate accounting understatement of economic gains by
management, perhaps to reduce taxable profit or to minimise the risk of
regulatory intervention. This might be described as misrepresentation, with the
effect that net asset values are artificially depressed. From the perspective of the
usefulness of financial reporting to investors in the reporting entity, there is little
reason, if any, to view this bias as desirable. On the other hand, however, there is
a more subtle context within which the non-recognition of certain economic
gains can be seen as being, on balance, a desirable property of financial
reporting. This is when it arises as a result of a cautious approach, whereby the
inherent uncertainty of expected economic gains leads to their recognition being
delayed for the time being, until they become more certain and verifiable. The
understatement of net assets in this context is argued to be economically
valuable and desirable, because it contributes to what is termed the ‘contracting’
function of financial reporting (Watts, 2006; Göx and Wagenhofer, 2009; Kothari
et al., 2010; Lambert, 2010; Shivakumar, 2013; Mora and Walker, 2015).
While commonly used in the research literature (and so repeated here), the term
‘contracting’ is actually somewhat unhelpful in the context of the Framework.
Importantly, a ‘contracting’ explanation doesn’t actually require there to be a
contract in use at all. The language of ‘contracting’ is used in the research
literature to describe engaging in mutually beneficial economic activity. It is not
used in the same sense that the IASB would use the term. The reason that this is
important is that the literature’s use of the term is consistent with the remit of
the IASB, while the IASB’s notion of contracting is not. To dismiss the
contracting concept because it is being used differently would be to miss the
point.3
In brief, the case for conventional prudence rests upon the interaction of two
characteristics that commonly exist in the practical context within which
financial reporting to investors takes place. It is noteworthy that neither of these
3
The Preface to IFRS explicitly identifies the purpose of financial reporting in terms of
decision-relevance for (primarily) investors, and not in terms of providing data for
contracting purposes. This position has been restated as recently as 2014, as follows (IASB,
2014, para. 45): “General purpose reports are often referred to in contracts between banks
and their business customers ... It is not the responsibility of the IASB to meet the objectives
of these other bodies.” Yet this private characterisation of contracting is unduly narrow in
the context of prudence, and the underlying concept also applies much more broadly to the
financial reporting environment. The argument is that the objective of providing decisionuseful information to investors should not be presumed, in an agency setting, to imply that
the ‘unbiased’ reporting of net asset values is realistic. In effect, the equity investment
decision is understood as a further manifestation of a contracting setting, where there are a
large number of principals, each holding an equity investment contract of the same type, and
each therefore having a common interest in conventionally prudent, general-purpose
financial statements.
characteristics is adequately captured in the Framework, leading to a ‘blind spot’
with respect to the conceptual case for conventional prudence. The
characteristics are as follows:
(1) Uncertainty in measurement, and the passage of time. While the
Framework acknowledges the presence of uncertainty, and the associated need
for estimation, it does not acknowledge that uncertain estimates cannot in
principle be verified, making them different in nature from observable amounts
(Barker and McGeachin, 2013). Equally, the role of the passage of time in this
context is not discussed in the Framework (except for an indirect mention in
para. 2.31, the purpose of which is to downplay verifiability). In practice,
amounts that are uncertain at one point in time (such as provisions) will
eventually become certain with the passage of time (for example, as provisions
are settled). There is therefore a trade-off in financial reporting between
verifiability and timeliness: there could be early (timely) recognition of items in
the form of uncertain estimates, or else delayed recognition of those items in the
form of amounts that have become known and verifiable.
(2) Asymmetry of information and of economic incentives between
management and investors. While the Framework acknowledges the role of
financial reporting in ‘reducing the information gap’ between reporting entities
and investors, the Framework does not address the ‘principal-agent’ problem,
whereby management may exploit their informational advantage if their
economic interests are best served by reporting information that differs from
that ideally received by investors.
It is in the interaction between these two factors that the case for conventional
prudence arises. Specifically, when the measurement of balance sheet amounts
is uncertain, there arises the trade-off between verifiability and timeliness. The
question arising in that context is why investors (‘principals’) should trust
information reported by preparers of accounts (‘agents’) if those preparers
benefit from reporting ‘good’ news, if they have greater access to underlying
data, and if the information that they report is unverifiable and therefore
unreliable. The answer is that investors would be more likely to trust the
information if uncertain economic gains were excluded. And if trust is
established in this way, then investors become more willing to invest, meaning
that more economic activity is likely to take place.
Consider what happens if IFRS requires conventionally prudent accounting. If, in
this context, a company seeks to issue equity or debt, then the application of
conventional prudence means that the company will in effect be committing to
excluding uncertain gains from future net assets. This is reassuring to the
potential investor, making him or her more likely to be willing to invest. This is
because the exclusion of uncertain gains implies constraints on management
exploiting their information asymmetry in order to further their own economic
incentives at the expense of those of investors (for example, high bonus
payments could be justified by high reported profits, even if those profits were
nothing more than estimates made up by the managers themselves). This
exclusion of uncertain gains give the accounts greater information credibility
than would otherwise be the case, while also enabling an earlier opportunity for
active intervention by investors in the event of unforeseen adverse outcomes.4
Conventional prudence is thereby economically efficient (value-creating),
because it enables mutually beneficial economic activity that would otherwise
not take place.5
A couple of simple examples from IFRS can be used to illustrate the argument.
The first is that the need for reliable measurement is emphasised more heavily
in IFRS with respect to assets than liabilities. In IAS 38, for example, it is
asserted that, for some internally-generated intangible assets, it is not possible
to determine reliably either cost (para. 49) or future economic benefits (para.
51), meaning that such assets should not be recognised. In the cases of research
(para. 54) and brands (para. 64), there is explicit prohibition of capitalisation.
Yet, without explanation, the exact opposite conclusion is reached in IAS 37,
where measurability is presumed for provisions: ‘except in extremely rare cases,
an entity will be able to determine a range of possible outcomes and can
therefore make an estimate of the obligation that is sufficiently reliable to use in
recognising a provision’ (para. 25). The difference here is not in measurability
but in desired recognition outcome, with uncertain economic losses being
recognised while uncertain economic gains are excluded. The second example is
the accounting treatment of a lawsuit under IAS 37, where a liability of uncertain
amount is typically recognised in the accounts of the defendant, while even with
no difference at all in either the amount under consideration or the associated
uncertainty, an asset is typically not recognised in the accounts of the plaintiff.
This is again an application of conventional prudence, of differential verifiability,
whereby estimates of liabilities (and thereby losses) are recognised, but not
estimates of assets (and thereby gains).
This perspective also has implications for the stewardship role of financial reporting, or – as the
Framework describes in para. 1.22 how ‘management has discharged its responsibilities.’ The
purpose of the financial statements in holding management accountable to shareholders can be
interpreted as supporting the existence of shareholding contracts, both ex ante in providing
confidence that the financial statements will provide information that will enable shareholders
to intervene or sell on a timely basis, and ex post in subsequently providing the information that
enables that control to be exercised. Note here the weakness in ignoring incentive asymmetry,
and in allowing management to provide their own, uncertain estimates of economic gains.
5 There is an assumption that the benefits here outweigh any disinformation resulting from the
delayed recognition of unverifiable gains.
4
As the examples chosen here are taken from the actual requirements of IFRS,
they serve not only to illustrate the application of conventional prudence, but
also to enable two additional observations. First, they illustrate that
conventional prudence exists in practice already in IFRS, with the implication
that it would be anomalous for it not to exist also in concept (Barker and
McGeachin, 2015). While the Basis argues (para. BC 2.10) that prudence ‘works
both ways (so that assets and liabilities are neither overstated nor understated)’
there is of course greater concern in practice about one way, rather than the
other. Second, these examples accord with conventional accounting practice,
and therefore with the instincts of those who objected to the absence of
prudence in the 2013 DP. (Arguably, the examples also illustrate the instincts of
the IASB itself when it operates at the level of specific recognition and
measurement issues in individual standards.) These two additional
observations perhaps highlight that the conceptual argument given above does
not need to be fully articulated in order for its conclusions to be felt instinctively.
Instead, in these examples of actual IASB practices which are aligned with the
intuition and experience of many of the IASB’s stakeholders, the above theory
can be seen simply as a formalisation, as an underlying explanation, for generally
accepted accounting practice.
In the next section, we consider briefly some practical objections that have been
raised to the adoption of the concept of conventional prudence in the
Framework.
5. Reasons not to (re)introduce Conventional Prudence?
This section reviews, in no particular order, arguments that have sometimes
been used in favour of excluding prudence from the Framework. In each case,
the argument is expressed briefly in italics, and a response is then given
immediately after.
a. Prudence is not a practically useful concept because it is too vague. In
particular, it does not help with the question of how much prudence should
be applied in any given situation.
Many concepts are open to this same criticism. We do not, for example,
have a scale for the measurement of relevance. Moreover, it should be
remembered that the case for prudence arises in the context of
uncertainty, and for this reason it would be conceptually inconsistent to
dismiss prudence because it is imprecise in application. Rather, it is a
necessarily vague concept, with this uncertainty being the reason for its
existence in the first place; this is not a reason for exclusion from the
Framework. In practice, whether and how to apply prudence becomes a
matter of judgement at the standards level, and the role of the
Framework is simply to set out the underlying concept.
b. Prudence is not applied in all accounting standards but instead only in
certain instances. It should therefore not be in the Framework but instead
should be applied as needed at the standards level.
If prudence is a concept, to be considered in the development of any given
standard, then it belongs in the Framework. Not all components of the
Framework are relevant to the consideration of all aspects of all
standards, but what all content of the Framework should have in common
is being part of the conceptual foundation for accounting practice.
Moreover, consistent application of a concept across any given number of
accounting standards requires a clear benchmark against which that
consistency can be determined and evaluated, and the place for such a
conceptual benchmark is the Framework.
c. If net assets are understated in the current period, financial performance
will be overstated in future periods, which cannot be described as prudent.
If gains are excluded when they are uncertain, then inevitably they will be
reported in a future period when they become certain. If the test of
prudence is that gains are recognised only once they can be verified, then
this can (and should) be described as prudent. Note that at no point are
net assets over-stated. The key question is whether investors would
prefer a measure of financial performance that they can trust, as opposed
to one that they cannot.
d. If the Framework allows bias, and a departure from neutrality, then it acts
as an open invitation for the manipulation and abuse of financial
statements.
There are two defences against this argument. First, it is up to the IASB
how to use the Framework in setting standards, and it is in the
application of standards themselves that accounting policy decisions are
made by preparers. Second, conventional prudence can in any event be
defined as consistent with neutrality and unbiased, for the reasons
described above.
e. Prudence would result in the prohibition of unrealised gains (BC 2.14).
There is no reason for this to be the case. The definition of (conventional)
prudence rests not upon realisation but upon uncertainty. An unrealised
gain need not be uncertain.
f.
Prudence would permit an entity to measure an asset at an amount that is
less than an unbiased estimate. (BC 2.14)
This objection misses the point with respect to uncertainty. If an amount
is uncertain, then it is misleading to think in terms of an ‘unbiased
estimate’. The nature of uncertainty is such that there is insufficient
information with which to make an unbiased estimate. A more accurate
description would be ‘management’s own guess’. The question then
becomes one of whether an unreliable number made up by management
is preferable to delaying recognition until there is greater certainty.
6. Recommendations
The recommendations below follow from the discussion above:
a. The treatment of prudence in the ED (IASB Prudence) should be
dropped. This is because
i. it serves no useful purpose that is not already served by the
concept of neutrality
ii. it risks confusion, not least because it is an uncommon
interpretation of the concept of prudence
b. In place of the current treatment of prudence in the Framework, a
definition such as the following should be used:
Prudence is the application of a higher threshold of verifiability for
the recognition of assets or gains than for liabilities or losses.
c. The above definition should be supplemented with a clear explanation
in the main body of the Framework of the context within which the
definition applies (uncertain gains)
d. The above text in the main body of the Framework should be
supplemented with a clear explanation in the Basis of the conceptual
rationale for prudence, including the underlying role of:
i. uncertainty in measurement, and the passage of time
ii. asymmetry of information and of economic incentives between
management and investors.
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