In 2012, Hans Hoogervorst, Chairman of the IASB, gave a speech at the FEE Conference on Corporate Reporting of the Future entitled “The Concept of Prudence: Dead or Alive?” This speech was in answer to many who opposed the elimination of “prudence” from the recently revised qualitative characteristics of useful financial statement information. The speech can be found on the IFRS website at www.ifrs.org. Subsequently, in the May 2015 Exposure Draft “Conceptual Framework for Financial Reporting,” the notion of “prudence” was reintroduced into the conceptual framework, with an explanation in the basis for conclusions that accompanied the Exposure Draft. The concept has since been adopted in the revised conceptual framework.

Instructions

a. Mr. Hoogervorst indicated in his 2012 speech that there are many instances that demonstrate that IFRS implementation has not led to a loss of prudence. Discuss some specific examples he provides in which the revised conceptual framework of IFRS continues to instill the concept of prudence, in financial reporting.

b. Why was the idea of prudence originally removed from the earlier version of the qualitative characteristics of the conceptual framework? Why was the concept reintroduced in the 2015 Exposure Draft?

c. How does professional judgement affect the application of the concept of prudence? Will it be applied any differently than it was originally?