Question

What Accounting Principle Does the Following Represent:

A microfinance institution has been relying on government collateral subsidies to finance start-ups in rural areas. However, the government has cut the program recently. The company reports this situation in its financial statements as this might affect the decisions of stakeholders.

A) Going Concern Principle.
B) Materiality Principle.
C) Consistency Principle.
D) Conservatism Principle.

Answer 1

The situation represents the Conservatism Principle.

Step-by-step explanation:

The accounting principle that the situation represents is the Conservatism Principle. The Conservatism Principle states that when faced with uncertainty, a company should choose the option that is more conservative or cautious. In this case, the microfinance institution is reporting the potential impact of the government cutting the program on its financial statements to inform stakeholders about the potential risks and uncertainties.