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Principles based accounting as an accounting method which is used as a conceptual basis by accountants - Essay Example
Author : reichelida
Finance & Accounting
Pages 10 (2510 words)
Finance and Accounting Principles Based Accounting Standards By Your Name Class Name University’s Name Due Date Principles based accounting is an accounting method which is used as a conceptual basis by accountants. To ensure good reporting, this method sets out a simple set of key objectives…
This system follows principles. The term “principles” can be used simply to refer to general rules, or also to suggest that these rules are implicitly higher in the implicit or explicit hierarchy of norms than more detailed rules: they express the fundamental obligations that all should observe (Black et al, 2007). Some of the rules set out are mandatory to follow but many other rules are used as a mere guidance and are not applicable to every situation. For instance, many countries have adopted the International Financial Reporting Standards governed by the IASB. According to Securities and Exchange Commission of US, “…the optimal principles-based accounting standard involves a concise statement of substantive accounting principle where the accounting objective has been incorporated as an integral part of the standard and where few, if any, exceptions or internal inconsistencies are included in the standard” (2002). Rule-based accounting is a set of detailed rules which must be followed when financial statements are prepared. An example of such system is Generally Accepted Accounting Principles (GAAP). In US, GAAP is used as a standard framework of guidelines for financial accounting. CPA firms and corporations in US prepare and present their business incomes and expenses, assets and liabilities in their financial statements following GAAP. ...