Prudence is undoubtedly the most controversial accounting principle, because it systematically adopts a pessimistic outlook on economic transactions. Although the mechanics of prudence (or conservatism) may seem easily applicable in practice, the providers and users of accounting information usually concern themselves with questions such as: why this pessimistic approach to doing business and when is it suitable? For this purpose, we created a mixed research model in order to answer the question: is accounting culture still a significant factor in the choice of accounting policies, even if the companies are presumably following uniform accounting standards, such as IFRS? A mixed model design is a research which uses both quantitative and qualitative data in one or two stages of the research process, so that the mixing of quantitative and qualitative approaches happens in every stage of a research. The quantitative attributes of our contribution are linked to the recognition and measurement of provisions for risks and charges, while the qualitative attributes are specific to the diagnosis of the degree of conservatism of each national accounting culture. Prudence in accounting is a corner-stone concept which has shaped accounting theory, as well as ordinary financial reporting, sometimes in obscure and perverse ways. Thus, on the quantitative side of the study, we developed a proxy for accounting conservatism, namely the degree of uncertainty associated with the settling of a company's obligations. To this purpose, we hand-collected accounting data for 388 business groups from 17 European countries. The companies were extracted from a European large-cap index, and are representative for the main industrial and consumer sectors, excluding financial institutions. For these companies we computed the provisions-to-liabilities ratio (PLR) and performed several group tests, according to the following original classification of national accounting cultures. The qualitative nature of our contribution is apparent in the critical analysis of the degree of conservatism as a fundamental attribute of any national accounting culture. We classified the 17 European countries in our sample in three groups according to how domestic standards recognize and measure provisions for risks and charges, in comparison with IFRS. Thus, the companies in our sample belong to the following accounting environments: IFRS-compliant (147 firms), conservative (179) and liberal (62). The results indicate that companies incorporated in countries that are classified as 'conservative' do assign a significantly higher degree of uncertainty to their total amount of liabilities. If we take into account that all the companies in our sample prepare their annual accounts in compliance with IFRS, we can conclude that national accounting culture - when classified as prudent - exhibits a significant influence on the IFRS policies that companies apply with regard to the recognition and measurement of provisions. In other words, even if the International Financial Reporting Standards are the common accounting language of listed companies in Europe, the chapter on provisions is still a matter of managerial discretion, whether influenced by traditional accounting practices or by other factors.
