Rules based and principles based accounting standards essay

Introduction - Growing Ethical Awareness Ethics and the importance of ethical decision making have taken on increasing significance because of the pressures placed on business managers by stockholders, creditors, and other parties affected by financial performance.

In response, Congress passed the Sarbones-Oxley Act of to authorize the Securities and Exchange Commission to explore reforms to rules-based accounting systems. Accounting issues included ethical, as well as technical, requirements. Financial Accounting Standards Board FASB released a progress study describes the intensification of their plan of work, including forming monthly joint meeting of the Board, quarterly Updated convergence projects.

These moral problems are sometimes presented in the complex financial transactions, sometimes posed by disagreements between accountant and client over how financial statements are to be prepared in these ambiguous circumstances.

And so it is important that I repeat today what I have said before: The exercise is also of critical importance to the SEC. Instead of focusing only on shareholders and maximizing shareholder wealth, the accountant is encouraged to consider both the moral and social implications of their decisions in terms of how the decisions affect all stakeholders of the company.

Recognition of the ethical dilemma is the first step in deciding how to resolve the dilemma. So while there may be more than one reasonable interpretation or understanding, it has to be susceptible to explanation. Today, more than states around the universe with International Financial Reporting Standards and recognized criterion for fiscal statements — some of which have adopted it as its accounting rules.

GAAP is the exclusive purview of a particular regulator — but rather, they are public goods for the common benefit of many.

Managerial and Financial Accounting

Principles-based accounting also has the virtue of being simpler: Some accountants point out that, in the absence of specific rules, defending accounting practices in legal cases is difficult.

In Section d 1 of the Sarbanes-Oxley Act, the SEC was directed to undertake a study on the "adoption by the United States … of a principles-based accounting system.

Securities and Exchange Commission to and foreign private reconcile ready with U. Instead, it is that financial statements prepared using IFRS cannot be compared to one another because of a lack of consistent and uniform implementation.

What is the difference between principles-based accounting and rules-based accounting?

Depreciation method to apply i. Accounting Conventions There are four main conventions in practice in accounting: Fiscal statements from around the universe will be better able to compare and measure the problem with others.

As the educational process continues, the accounting student builds on this foundation.

Advantages and Disadvantages of Principles-Based Accounting Essay

In addition to the GAAP standards which govern the techniques and formulae for reporting specific information, the professional is guided by codes of conduct that are created by professional societies. Indeed some companies have made ethical leadership in the market a central part of their corporate strategy.

Whose rights or claims may be violated. For example, an essay on Moby Dick that does not mention the whale may raise questions that the writer has perhaps missed something important about the novel.

Globalization of the economy has led to a mixing of cultures and socioeconomic systems. Hunt, commissioner of the Securities and Exchange Commission, highlighted the importance of accountants and auditors in ensuring the credibility of the financial reporting process.

The initial stages of accounting education place a premium on learning of key concepts, principles, and procedures. Nonetheless, given the relative newness of IFRS, the staff of the Office of the Chief Accountant and the Division of Corporation Finance have worked hard to understand the new standards and how issuers are using them to state their financial results.

In this way, you are introduced to the conceptual framework of the accounting process. It also meant that the SEC was seriously contemplating a system in which not only foreign issuers, but also domestic issuers will have that choice. In accounting, a business is expected to continue for a fairly long time and carry out its commitments and obligations.

For example, through the practice of preparing financial statements, you learn to focus on relevant features of economic activity and to report them as the particular rules of the profession indicate. And a comment letter that asks for more detail or greater explanation does not mean that the SEC is trying to impose its own interpretation.

Why worry about these additional stakeholders. Under cash basis accounting, preferred by small businesses, all revenues and expenditures at the time when payments are actually received or sent are recorded. The Accounting Profession and Ethics In addition to knowledge of rule-based techniques of preparing financial statements and methods of reviewing financial reporting practices of companies and clients, accountants "should know and understand the ethics of the profession and be able to make value-based judgments.

Their accountants must have a set of standards to follow when creating them. This observance of accounting principles has helped developed a widely understood grammar and vocabulary for recording financial statements. Improved communication of material issues to shareholders iii.

Allowing the use of two different sets of accounting standards in the United States would mark a significant change for us. The first step is to know when you have a problem.

Global accounting standards would improve investor confidence in the market, so long as the standards are high-quality, comprehensive and rigorously applied. Rules-based vs principles-based accounting Mon, 10/03/ - -- Anonymous (not verified) Firms and companies are almost always required to prepare financial statements in compliance with the standards set by the Financial Accounting Standards Board (FASB), the standards of which are generally principles-based.

According to the Accounting Standards Codification, there are specifically selected procedure, rules and principles which a business enterprise chooses in the preparation and presentation of its financial statements and disclosures at the end of its specified accounting period (Accounting Standards Codification Professional Review, n.d.).

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Accounting or accountancy is the measurement, processing, and communication of financial information about economic entities such as businesses and modern field was established by the Italian mathematician Luca Pacioli in Accounting, which has been called the "language of business", measures the results of an organization's economic activities and conveys this.

GAAP (US Generally Accepted Accounting Principles) is the accounting standard used in the US, while IFRS (International Financial Reporting Standards) is the accounting standard used in over countries around the world.

GAAP is considered a more “rules based” system of accounting. In Septemberthe International Accounting Standards Board and the U.S.

Financial Accounting Standards Board is tantamount agreed to work together with other states and parts, accounting for audience with the bureaus in order to accomplish convergence of IFRS and U.S.

GAAP by and large accepted accounting rules (GAAP). GAAP (generally accepted accounting principles) is a collection of commonly-followed accounting rules and standards for financial reporting.

The acronym is pronounced "gap." GAAP specifications include definitions of concepts and principles, as well as industry-specific rules.

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Rules based and principles based accounting standards essay
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