Conservatism in Accounting

The accounting principle of conservatism has its roots with bankers and debt financing. Bankers have urged businesses to underestimate earnings and overestimate expenses in order for the investors to make safer decisions in the future. Conservatism was relatively practical during the rudimentary beginnings of business. However, due to changes in corporate finance and new users of financial statements, conservatism has no place in financial accounting. Undoubtedly judgments and estimates must be made, but conservatism is no longer an accounting principle and the most accurate figure possible should be used with no bias in either direction