Rationale for Correct Answer:The conservatism principle in accounting means that financial statements should not overstate assets or income and should anticipate possible losses. Thus, the amounts shown should be at least as much as reflected, if not more. This ensures users are not misled by overly optimistic figures.
Analysis of Incorrect Options:
A. Fraudulent statement – Involves intentional misrepresentation, not a principle of accounting.
B. Misappropriations – Theft of assets, unrelated to valuation principles.
D. Matching – Refers to aligning expenses with related revenues, not conservatism.
Key Concept:Conservatism principle — caution in financial reporting.
[Reference:ACFE Fraud Examiners Manual (2020 International Edition), Accounting Concepts — Conservatism in GAAP., , ]
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