Caution Prudence Under Uncertainty: An Experimental Assessment Within IAS 37

ABSTRACT This study examines how professional accountants apply cautious prudence under conditions of uncertainty, with specific reference to IAS 37, a standard that introduces an asymmetrical approach to the recognition of contingent liabilities and contingent assets. Using a 2×4 experimental design involving 200 professional accountants from various European countries, the study investigates how recognition and disclosure decisions are made in accordance with the requirements of IAS 37. The findings reveal a consistent application of cautious prudence in the treatment of liabilities, whereas judgments concerning high‐probability contingent assets tend to deviate from the provisions of the standard, indicating a departure from a proper application of prudence under uncertainty. These results suggest that natural cognitive tendencies may adversely affect the effective implementation of cautious prudence. The study further provides empirical evidence on the impact of professional judgment on the application of accounting standards, highlighting the need to strengthen cautious prudence within the IASB's Conceptual Framework.