The impact of prudence principle application on true and fair view provided by financial statements prepared in accordance with Slovak accounting legislation

Abstract

The true and fair view principle is respected by all forms of international accounting harmonization and accounting regulations of individual countries too. The importance of  true and fair view principle results from the information function of accounting. We understand accounting, primarily its final product – the financial statements, as a tool for the effective submission and mediation of information found about the accounting entity to the relevant users. Users make decisions in relation to this accounting entity based on this information. It is therefore important that financial statements provide their users with useful, unbiased and neutral information. Users of information must know what are the starting points for the preparation of financial statements and must also know what affects the information contained in the financial statements in order to be able to make responsible decisions. It is the application of prudence principle that has a significant impact on the information presented in the financial statements. The paper emphasizes the importance of prudence principle for achieving the true and fair view, explains the interconnection of both accounting principles and clarifies the impact of application of prudence principle on the scope of information and measurement of items presented in the financial statements.