Bromwich, Michael, Benston, G.J and Wagenhofer, Alfred (2006) Principles-versus-rules-based accounting standards:The FASB's standard setting strategy. Abacus, 42 (2). pp. 165-188. ISSN 0001-3072
Abstract
In response to criticism of rules-based accounting standards and Section 108(d) of the Sarbanes-Oxley Act of 2002, the SEC proposed principles-based (or ‘objectives-oriented’) standards. We identify several shortcomings with this approach and focus on two of them. First, the format (type) of a standard is dependent on the contents of what the standard regulates. Given the asset/liability approach combined with fair values, we argue that the combination of this measurement concept with principles-based standards is inconsistent because it requires significant guidance for management judgment. Second, we propose the inclusion of a true-and-fair override as a necessary requirement for any format that is more than ‘principles-only’ to deal with inconsistencies between principles and guidance. We discuss the benefits of this override and present evidence from the United Kingdom's experience.
| Item Type: | Article |
|---|---|
| Official URL: | http://www.blackwellpublishing.com/journals/abacus |
| Additional Information: | © 2006 Wiley-Blackwell |
| Uncontrolled Keywords: | accounting standards, FASB, principles, rules, rules-based |
| Library of Congress subject classification: | H Social Sciences > HF Commerce > HF5601 Accounting |
| Sets: | Departments > Accounting and Finance |
| Rights: | http://www.lse.ac.uk/library/rights/LSERO.htm |
| URL: | http://eprints.lse.ac.uk/14847/ |
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