Accounting policy, GAAP & adjustments · Working
Prudence
Also called: conservatism
ELI5
Cautious judgement under uncertainty without deliberate bias, as understood in the applicable framework.
Used in conversation
“The number is useful only if everyone calculates prudence the same way.”
Pitch context
You will see “Prudence” in financial models, budgets, board packs and investor materials when the discussion reaches accounting policy, gaap & adjustments.
Why it matters: In accounting policy, gaap & adjustments, a loose definition can change rights, obligations, approval, disclosure or enforceability.
Caution
Meaning, enforceability and required process vary by jurisdiction and agreement; this definition is not legal advice.
Sources & evidence · 4
Direct term-level sources and supporting source families.
- IFRS Foundation — IFRS GlossaryDirect source · primary · checked 2026-08-16
- Financial Accounting Standards Board — FASB Accounting Standards CodificationDirect source · primary · checked 2026-08-16
- U.S. Securities and Exchange Commission — Non-GAAP Financial Measures — Compliance and Disclosure InterpretationsDirect source · primary · checked 2026-08-16
- U.S. Small Business Administration — Break-even pointSupporting source family · primary · checked 2026-08-16