Some mysteries relating to the prudence principle in the Fourth Directive and in German and British law

Abstract

Article 31 of the Fourth Directive, which specifies the general valuation principles to be applied in the preparation of financial statements, shows a difference in emphasis between the different language versions. Except for the English version of the Directive, all others emphasize prudence, as opposed to the other valuation principles required by the article. The earlier drafts of the Directive are examined in an attempt to trace the development of this difference between the English and the other language versions. It seems that the particular wording of Article 31 with its relatively greater weight on prudence probably results from UK influence, more specifically from SSAP 2. A possible solution is then suggested as to why this particular emphasis on prudence was not retained in the English version of the Directive. Further, it is noted that German law did not explicitly make prudence an overriding concept before the Fourth Directive and nor does the German implementation of Article 31.