Prudence and Directive 34 – Reality and Rhetoric in Accounting Regulation

Abstract

We explore the concept of prudence consistent with Directive 34/2013. There are three strands to our argument: economic, regulatory and legal. From an economic perspective, we demonstrate that neither historical cost nor fair value are designed to achieve long-run operational stability. Regarding regulation, we show that Directive 34 has significantly changed the concept and implications of prudence, in the name of increasing usefulness and relevance. Our legal considerations centre on the Gimle case of 2013, applying its logic to the new regulatory scenario. We note also the concept of the ‘European Public Good’. At various times the EU has suggested four specific components: protection of financial stability, the lack of hindrance to the economic development of the Union, and the objectives of sustainability and long-term investment. To achieve these objectives within the EU we show that it is necessary to follow the logic of our arguments.

Keywords:

• prudence
• historical cost
• fair value
• capital maintenance
• Stolojan report

Disclosure Statement

No potential conflict of interest was reported by the authors.