Principles Versus Rules-Based Accounting Standards


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Identify and explain one principles-based standard that the companies have adopted


“…..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).”


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.

(Hint: choose a rules and principles-based standard from the corporate accounting topics covered in lectures during weeks 1-8)

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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