Principles versus rules-based accounting standards

“…..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.

 

Part I

 

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.

 

Part II

 

Access the annual reports of two (2) publicly listed companies from different industries, and:

  1. Identify and explain one rules-based standard that the companies have adopted and
  2. 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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