Principle of prudence

The Economic Times  Jun 28  Comment 
Monthly tax-free dividend of 12 per cent attracted both savvy HNIs as well as retirees HDFC Prudence.
Financial Times  Apr 23  Comment 
Qatar Investment Authority is latest high-profile convert to passive investments
The Hindu Business Line  Mar 4  Comment 
Higher equity exposure and mid-cap bets have helped the fund perform well
Channel News Asia  Feb 28  Comment 
Amid the current economic slowdown, helping affected workers was the top concern of some MPs, as was transforming businesses as well as the importance of maintaining fiscal prudence.
The Hindu Business Line  Feb 12  Comment 
Despite short-term fluctuations, efforts to improve fiscal measures should continue
The Hindu Business Line  Feb 8  Comment 
To be content with moderate inflation rates is misleading, when demand is hit by the high absolute level of prices
Wall Street Journal  Feb 8  Comment 
Rio Tinto has benefited from the upturn in iron-ore prices, but future gains depend on a host of big global trends.
The Economic Times  Feb 3  Comment 
No decision taken is contradictory to larger roadmap that government follows, said Arun Jaitley.
The Economic Times  Feb 3  Comment 
The rating agency also expressed concern over the budgeting of lesser capital -- Rs 10,000 crore -- for infusion into public sector banks in 2017-18, which it said is a "credit negative".


The Principle of prudence is one of the seven principles of GAAP, and requires companies to report, on their balance sheet, the value of their assets and liabilities at their least favorable valuation. Additionally, the principle demands that income/expense recognition and projections be realistic -- i.e. revenue is not recognized unless it is certain, while expenses are recognized while they are probable.

For example, if there is a dispute about sales, the company is encouraged not to report the disputed revenue. However, if there is a lawsuit that may require the company to pay fines/fees, it has to be reported (at least in the notes).

On the other hand, investments are recorded at the value that the firm paid for it or the market value, whichever is lower. It is only after selling the position that the company recognizes any gains. Similarly, inventory of raw materials is valued at the lower of cost of purchase and market price; and inventory of finished goods are recorded at the lower of cost of production and selling price. Additionally, all real-estate assets are recorded at cost and any increase in value is not accounted for till the sale of the asset, but any significant loss of value is reported immediately. Finally, the principle requires goodwill and intangible assets to be written down gradually.

"Those with responsibility to invest money for others should act with prudence, discretion, intelligence, and regard for the safety of capital as well as income." Judge Samuel Putnum in 1830 [1] See: Prudent man rule


Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki