- 15 Marks
CR – May 2021 – L3 – Q5 – Regulatory Environment for Corporate Reporting
Discuss the benefits and criticisms of principle-based accounting standards and the consequences of transitioning from rule-based to principle-based standards.
Question
The debate over principle-based and rule-based accounting standards has increased as the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) seek to converge accounting standards for global uniformity. There have been divergent opinions as to whether rule-based standards are superior to principle-based standards and whether principle-based standards pose greater ethical challenges to accountants than rule-based standards.
Required:
a. What are the major benefits and basic criticisms of principle-based accounting standards? (10 Marks)
b. What are the consequences of transiting from rule-based to principle-based accounting standards? (5 Marks)
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