“…..rules-based accounting standards are perceived to be detailed, complex and with numerous scope exceptions (Nelson, 2003; Schipper, 2003). On the other hand, principles-based standards are asserted to have more professional judgment (Benston et al., 2006).”
Source: Bradbury, M.E and Schroder, L.B. (2012), The content of accounting standards: Principles versus rules. The British Accounting Review, Vol. 44 No. 1, pp.1-10.
Discuss why accounting standard setting bodies have chosen to use a mix of rules and principles-based standards for the development of accounting standards? (HINT: To achieve a reasonable score you need to research this question beyond the Bradbury and Schroder (2012) article.
Access the annual reports of two (2) publicly listed companies from different industries, and:
- Identify and explain one rules-based standard that the companies have adopted and
- Identify and explain one principles-based standard that the companies have adopted.
Evaluate the financial consequences of using the rules-based compared with the principles-based standards on the financial statements of each company.
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