What is the main purpose of the Conservatism Assumption in accounting practices?

The main purpose of the Conservatism Assumption in accounting is to account for potential losses while avoiding overstatement of gains. This principle guides accountants to choose methods and estimations that are least likely to overstate financial health or performance. It acts as a safeguard against optimism bias, promoting cautious reporting that acknowledges uncertainties and risks.

By recognizing potential losses early, while deferred recognition of gains until they are realized, this assumption helps create a more reliable and prudent depiction of a company's financial situation. It fosters an environment in which stakeholders can make informed decisions based on conservative estimates, ultimately leading to greater financial integrity and trust in financial reporting.

The other options might address aspects of accounting but do not accurately reflect the core intention of the Conservatism Assumption. For instance, while transparency is essential, it is not the primary focus of conservatism. Similarly, although comparisons between accounting periods and simplifying record-keeping are valuable, they are not directly tied to the purpose of ensuring a cautious approach to valuing assets and liabilities.