Preview
Preview

The Case for Principle-Based Accounting Essay

:: 6 Works Cited
Length: 1056 words (3 double-spaced pages)
Rating: Purple      
Open Document




- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -


Samuel J. Ochieng
DQ Week 2
Discussion on whether to use rules or principles based accounting standards
Stakeholders in accounting include and are not limited to shareholders/investors in the company, regulators, lenders, customers and the accounting profession, just to mention a few. All the stakeholders have interest in high quality accounting reports that enable them to make a fair judgment whenever they need to make a decision on regarding a company.
Rules-based and principle-based accounting standards both have advantages and disadvantages. Advantages of rule-based accounting standards include clarity in application, reduction of risks when the rules are followed to the letter and the ease of comparing companies with the same industry using the same rules. Disadvantages of rule-based accounting standard include rigidity since a transaction must be accounted for under specified rule(s), inability to compare companies when the rules are different even if the transactions are similar and increased risks when the prescribed rules are not adhered to. Advantages of principle-based accounting standards include the option(s) left to those preparing the accounting statements to consider how to account for and report a transaction, ease of comparison of companies with similar transactions and the room to for accountants to defend their positions based on the principles followed. Disadvantages of the principle-based approach include the proliferation of too many accounting approaches with different principles, room to manipulate accounting statements and lack of precise rules on how to account for transactions.
Discussion on the accounting standard, whether rules-based or principle-based accounting, that best serves the needs of stakeh...


... middle of paper ...


... International Journal of accounting and Financial Reporting. Vol. 1 No. 1. Accessed from http://macrothink.org/journal/index.php/ijafr/article/viewFile/1096/905 on 29 March 2014.
Pitt, H. L. (2002) Testimony concerning legislative solutions to problems raised by events relating to Enron Corporation before the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises of the United States House of Representatives. Accesses from http://fl1.findlaw.com/news.findlaw.com/hdocs/docs/enron/pitttstmny020402.pdf on 29 March 2014
Smith, P. A. & Hogan, M. V. (2004) Principle’s verses rule-based accounting standards and the application of the determination of control for consolidation. AICPA Professor/Practitioner Case Program, Case No. 2004-01. Accessed from http://www2.accaglobal.com/pdfs/int_newsletters/hongkong/080206-finreport.pdf on 29 March 2014





Click the button above to view the complete essay, speech, term paper, or research paper

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »







This essay is 100% guaranteed.


Title Length Color Rating  
Essay on The International Accounting Standards Committee Foundation - Question one: outline the structure of the International Accounting Standards Committee Foundation (IASC Foundation). The purpose of this essay is to describe the structure of the IASC Foundation. The International Accounting Standards Board (IASB) is organised under an independent organisation called the IASC Foundation. IASC Foundation is a not-for-profit organisation who acts in the public’s interest. Components of the restructured IASB include the Monitoring Board, IASC Foundation, IASB, International Financial Reporting Interpretation Committee (IFRIC), Standards Advisory Council (SAC) and working groups....   [tags: Accounting]
:: 12 Works Cited
2146 words
(6.1 pages)
Term Papers [preview]
Ethical And Legal Obligations In Accounting Essay - According to Marshall (2004), "accounting is the process of identifying, measuring, and communicating economic information about an organization for the purpose of making decisions and informed judgements" (p. 3). Specifically, financial accounting "refers to the process that results in the preparation and reporting of financial statements for an entity" (Marshall, McManus, & Viele, p. 5). While many entities prepare their own financial statements, firms can also contract with a public accounting firm or a Certified Public Accountant (CPA) to perform services such as reviewing or compiling statements....   [tags: Business Accounting] 1324 words
(3.8 pages)
Good Essays [preview]
Essay about Accounting - According to the Generally Accepted Accounting Principles, T-Shirts by Tommy can account for the accident is to record an extraordinary item. Using the definition from our Intermediate Accounting textbook, extraordinary events are defined as, "…events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence" (Keiso). Because of the nature of the plane crash, and the fact that these types of accidents happen very rarely, it can definitely be categorized as extraordinary....   [tags: Business Analysis Accounting Finance] 1607 words
(4.6 pages)
Strong Essays [preview]
Case 8-2: Whither The Withering Standard Setters? Essay - Chapter 8 Case 8-2 “Whither the Withering Standard Setters?” 1. There are a number of differences between the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB). The IASB consists of 16 members with 3 part time members. The FASB consists of 5 members with no part time members. The members of the IASB board consist of 4 from Asia, 4 from Europe, 4 from North America, 1from Africa, 1 from South America, with 2 from any region in the world. This board is diversified with its members being knowledgeable in the varying fields of accounting such as the academic world, as well as those who utilize, prepare, and audit financial records....   [tags: International Accounting, Global Accounting]
:: 3 Works Cited
1051 words
(3 pages)
Strong Essays [preview]
Vitamix Revenue Recognition Essay - Vitamix Revenue Recognition – “Special Cases” Proper revenue recognition is important in because it has a direct impact on quarterly income statements, incentive calculations, investor confidence, and perception of an organizations financial health. The scandals at Enron and WorldCom illustrate how important properly recognize revenue is to the financial integrity of a company and how abuse can be extremely dangerous. (Labaton, 2006) To maintain consistency across organizations, the Securities and Exchange Commission (SEC) relies on the standards published by the Financial Accounting Standards Board (FASB) to establish the guidelines for revenue recognition....   [tags: Accounting]
:: 3 Works Cited
1128 words
(3.2 pages)
Strong Essays [preview]
Essay on Benefits of Having International Accounting Standards - The purpose of this essay is to discuss the benefits of having international standards, reasons for national differences and difficulties in gaining agreement for standards. There are many benefits of having international standards. Firstly, this essay will only look at 4 benefits, which are comparability, credibility, principles and discipline. Secondly, this essay will state three national differences and evaluate their difficulties in gaining agreement. Finally a conclusion. Comparability is an accounting principle....   [tags: International Business] 752 words
(2.1 pages)
Better Essays [preview]
Cash Basis Accounting Versus Accrual Accounting Method: Matching and Revenue Recognition Principles. - Introduction To account for profit, businesses have an option of choosing between two methods of record keeping; that is the accrual basis method and the accounting basis method. Using one method throughout accounting period and then changing it at the end while determining profit, might introduce a form of biasness and hence resulting in inaccurate figures. The two methods are completely different in terms of how revenue and expenses are recognized and recorded. As a result, the accounting for profit between the two is also poles apart....   [tags: Business Finance ]
:: 6 Works Cited
1214 words
(3.5 pages)
Strong Essays [preview]
Financial Reporting in New Zealand Essay - The New Zealand (NZ) Framework for Financial Reporting is in the process of changing since 2009, as a result of the review of the statutory reporting requirements in New Zealand by Ministry of Economic Development (MED) and the Accounting Standard Review Board (ASRB). The mainly recommendation was to remove small and medium sized companies from the statutory reporting framework (Ernst & Young, 2013, p.11). This New Zealand Framework for Financial Reporting 2010 (NZ Framework) was issued by the New Zealand Accounting Standards Board of the External Reporting Board (XRB) in 2011....   [tags: framework, economic, accounting] 933 words
(2.7 pages)
Better Essays [preview]
Irish Auditing Accountancy Supervisory Authority (IAASA) Essay example - Introduction Background The Irish Auditing and Accountancy Supervisory Authority (IAASA) based at Millennium Park, Naas, Co. Kildare was established pursuant to the provisions of Part 2 of the Companies (Auditing and Accounting) Act, 2003 .The provisions of the act provided for a significant change in the regulatory regime in Ireland. The accounting profession in Ireland was usually self-regulated up until the late 19th century where in light of multifarious corporate collapses and accounting scandals, the government took measures to safeguard public interest due to political pressures arising as a result of globalization, the exigencies of international financial markets and the local media...   [tags: accounting, Ireland, financial reporting]
:: 22 Works Cited
2071 words
(5.9 pages)
Term Papers [preview]
Absorption/Full Costing, Variable/Marginal Costing, and Activity Based Accounting - Introduction The contained paper has been prepared with objectives of elaborating over the three different costing methods namely, Absorption/Full Costing, Variable/Marginal Costing, and Activity Based accounting. The first segment of the report seeks to define and illustrate the costing methods based on the personal understanding of the writer gained through the class room and the academic readings. Part two of the report takes a form of short essay, written critically to evaluate the application of standard costing and variance analysis to any size of business, and concludes with a verdict that whether or not standard costing and variance analysis is applicable to each business with consid...   [tags: Activity Based Accounting]
:: 18 Works Cited
2524 words
(7.2 pages)
Research Papers [preview]