Another example of the application

In the banking practice for all types of reserves are made at the time and determination of risk, regardless of the presence or adequacy of income. Feature of the reserves established on the basis of the precautionary principle, there is no money of their nature, that is, for a bank need not have the money. Note that the precautionary principle does not mean the creation of hidden reserves or excessive, the deliberate understatement of asset valuation and income or overstatement of liabilities or expenses to distort reporting. The importance of the precautionary principle is that its application allows users to avoid excessive "optimism" in the assessment of financial accounting for managers and is certainly an important tool for management of banking risks (credit, market). The principle of historical (actual) cost. Application of this principle means achieving adequate reflection of the financial condition of the bank's attempts, as far as possible, to avoid subjective assessments of business operations. According to the historical cost convention priority is to assess the assets and liabilities of the bank on the basis of actual costs to acquire them. However it is understood that the priority of historical (actual) cost concerns primarily the historical cost of assets and liabilities. Topic: The role of accounting in the management of the bank, its types and purpose | Tags: applications