Prinsiple Base vs Rule Base Accounting


Assignment1, Group

Section 1


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• Provide specific dictates for reporting financial information • Unavoidable. (Accountants must follow these rules or face penalties for noncompliance. )

• Effective rules-based standards require active participation of the financial reporting community to evaluate the resulting quality. Real life practice issues should be brought to the attention of the appropriate ruled based standards-setting bodies

• Provides basic guidelines for accountants to follow.
• Principles-based can be effective where precise rules and ongoing guidance have been the norm, also Financial markets need to be more sophisticated

• More standardized accounting statements • May produce more consistent and comparable financial reports across entities • Provides specific answer accounts are looking for and is reliable

• May improve the representational faithfulness of financial statements. • Accountants can use their principles and judgment to come to conclusions.

• While accountants may not arrive at the same specific answer, they will be close enough that being in the same ballpark is acceptable. • Makes it easy for accountants in different countries to review and interpret one another's information.

• Lack of flexibility. • According to lack of flexibility, as it focuses on “checking the boxes” more than portraying an underlying economic reality, rules-based accounting has not worked in practice. • Make standards longer and more complex

• Too complex and technical for nonaccountants, such as investors, to understand. • the quest for bright-line accounting rules has shifted the goal of professional judgment from consideration of the best accounting treatment to concern for parsing the letter of the rule.

• A lack of precise guidelines could create inconsistencies in the application of...
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