Paper Topic:

Rules-based or Principles-based Accounting Principles

Introduction

The capital markets as of this time rely mostly on trust . Wherein the accuracy are imagined to be true based on the financial information and wherein the reality in economy is reflected . These financial information or statements are then examined by the company whether it is reasonable or not reasonable , and the assurance of the statements to be true and fair or the other side . The evaluation of these will stick on to Generally Accepted Accounting Principles (GAAP . This opens the door for what would be the appropriate accounting system of

the companies in America the Rules-Based or the Principle-Based Accounting Principles

Brief Definition

Rules-Based Accounting Principle

Rules-Based Accounting Principle was established with the goal to provide the particular transaction or class of transactions a very specific accounting treatment ADDIN EN .CITE PaulsonHenry M Paulsonmindthegaap2007February 192003http /www .mindthegaap .com /pdfs /princ_based_standards .pdf (Paulson . In this principle of accounting , there are rules that serve as standards . The rules are very specific that often make large number of exceptions . However , the standards are very detailed that needs greater amount of guidance in the implementation of this principle . This very detailed standard in this rules-based accounting principle pointed out as many contingencies as possible , finding the best accounting method to be used . Also so-called the expert systems , these very detailed standard are widely use in many fields . The knowledge of an expert is encoded as a rule and in the set was the concept of this so-called expert system . Usually written in the if-then format , the rules-based principle of accounting is relatively simple and can be used for many problems . In the concerns of many accountants of the litigation over the exercise of their judgment and with the absence of bright-line rules , many accountants prefer the rules-based standards

Principles-Based Accounting Principle

Principles-Based accounting principle offers more comprehensive basis for the preparation of the financial statements . The principle-based has the flexibility to handle the new and different economic situations . Setting an objective had been an integral part of the principle-based accounting principle . In this principle-based principle , there is only few or almost no exceptions are involved . An appropriate amount of guidance in implementing the said principle would be needed with regards to the nature of the transactions that will be done and will be dependent on the class of events the corporate would have . The principle-based accounting principle is a consistent and has a conceptual basis on reporting financial statements

With regards to the reporting periods , the financial statements in the principles-based standards must be relevant , reliable and comparable This implies that the principles-based accounting would best reflect the reality in economy of the corporate in the finance statements reporting .Differences (Advantages and Disadvatages

The rules-based principle follows a list of detailed rules while the principles-based accounting makes use of a conceptual basis as standard Making a key objective in an entity has been the focus of the principles-based standards for reporting purposes . Guidance would be needed to explain these objectives and for...

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