If you are an accountant, i'm pretty sure you know about the law of conservatism. It is one of the ten basic accounting principles and guidelines. Here's a thorough explanation taken from www.accountingcoach.com.
If a situation arises where there are two acceptable alternatives for reporting an item, conservatism directs the accountant to choose the alternative that will result in less net income and/or less asset amount. Conservatism helps the accountant to "break a tie." It does not direct accountants to be conservative. Accountants are expected to be unbiased and objective.
The basic accounting principle of conservatism leads accountants to anticipate or disclose losses, but it does not allow a similar action for gains. For example, potential losses from lawsuits will be reported on the financial statements or in the notes, but potential gains will not be reported. Also, an accountant may write inventory down to an amount that is lower than the original cost, but will not write inventory up to an amount higher than the original cost.
This is my personal favourite among the accounting principles. I like the idea of being conservative. To me, it means being safe and well-prepared through knowing the anticipated risks involved in a given situation and choosing an alternative that has the lower risk.
Although I consider myself as a conservative, I believe I am an open-minded person too. I could understand why would someone willingly choose something that might put herself in a high risk situation. She said, "I am happy with my decision. It feels so right." I can only be happy for her. And I wanted to be completely happy about her decision. But I just can't do it at the moment, 'conservatism' is dominant in my system and is working very perfectly. :-)
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