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Principle-based Standards versus Rule-based Standards
Finance & Accounting
Pages 5 (1255 words)
Accounting policy makers design accounting standards to provide faithful reporting, therefore transparency of financial statement is the main emphasis of accounting standards…
Every organization prepares its financial statements following a certain set of accounting principles, these standards are generally principle (McGregor & Street 2007). Accounting policy makers are now emphasizing on the effectiveness of principle based accounting and rule based accounting. The argument of these debates has different perceptions (Bennett, Bradbury & Prangnell 2006). However, accounting is a precise subject based on mathematics and does not have any place for judgments. This paper discusses the statement with respect to arguments on these accounting principles referring conceptual framework. Rule based Accounting emphasizes on the detailed rules that shall be followed by accounting while preparing financial statements (Benston, Bromwich & Wagenhofer 2006). It states that the absence of rules may not provide accurate reporting of financial results. When strict rules are followed the accuracy increases and the possibility of ambiguity decreases. On the other hand, principle based accounting as known as Generally Accepted Accounting Principles is more focused on the conceptual basis for accountants (Bennett, Bradbury & Prangnell 2006). It is more concerned to ensure good reporting through a set of guidance. Principle-based accounting provides a broad range of guidelines that may be practiced for a variety of circumstances (Collins, Pasewark & Riley 2012). ...
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