3rd ICAI 2024

International Conference on Automotive Industry 2024

Mladá Boleslav, Czech Republic

and position of the accounting entity. Based on this information, they can then decide, for example, whether it is appropriate to collaborate with the respective company or invest financial resources into it. (Cerqueira, and Pereira, 2020). The prudence principle is a fundamental accounting concept that guides the preparation of financial statements. It suggests that when there is uncertainty about the future, a business should not overstate its assets or income. In essence, it encourages accountants to be conservative in their estimates and not to overstate profits or assets, thereby ensuring that financial statements provide a reliable and accurate representation of a company’s financial position. The importance of the prudence principle lies in its ability to enhance the reliability and relevance of financial information. (Geiger, Gold and Wallage, 2021) By exercising caution and conservatism, the prudence principle helps to reduce the risk of overstatement of assets and profits, which can lead to misleading financial statements. (Wagner, Bode and Koziol, 2009) This is crucial for stakeholders such as investors, creditors, and regulatory authorities, who rely on financial statements to make informed decisions. (Dirman, 2020) One of the key benefits of the prudence principle is that it helps to prevent the manipulation of financial statements for personal gain. By requiring companies to be conservative in their estimates, the prudence principle discourages management from engaging in aggressive accounting practices that could artificially inflate profits or overstate the value of assets. (Fasano, Rocca and Rizzo, 2023) This helps to promote transparency and integrity in financial reporting, which is essential for maintaining investor confidence and trust. Moreover, the prudence principle contributes to the overall stability of the financial system by providing a more accurate picture of a company’s financial position. (Christensen, Huffman, Lewis‐Western and Scott, 2022) By avoiding the overstatement of assets and profits, the prudence principle helps to ensure that companies are not taking on excessive risks or overstating their financial health. This is particularly important in times of economic uncertainty, as it helps to prevent the misallocation of resources and reduces the likelihood of financial crises. Another important aspect of the prudence principle is its role in facilitating comparability between different companies. By requiring companies to be conservative in their estimates, the prudence principle ensures that financial statements are prepared consistently, making it easier for investors and other stakeholders to compare the financial performance and position of different companies within the same industry. We can say that the prudence principle is a fundamental concept in accounting that helps to enhance the reliability, relevance, and transparency of financial information. By encouraging conservatism and caution in the preparation of financial statements, the prudence principle helps to ensure that financial information accurately reflects a company’s financial position and performance, thereby enhancing investor confidence and promoting the stability of the financial system. The going concern principle is a cornerstone of accounting, assuming that a business will operate indefinitely into the foreseeable future. This principle is essential for financial statement preparation, allowing accountants to depict a company’s financial

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