Defining Principles-Based Accounting Standards By Rebecca Toppe Shortridge and Mark Myring A key concern arising from the recent business scandals is that U.S. accounting standards have become “ruls-based,” filled with specific details in an attempt to address as many potential contingencies as possible. This has madestandards longer and more complex, and has led to arbitrary criteria for accounting treatments that allow companies to structure transactions to circumvent unfavorable reporting. In addition, the quest for bright-line accounting rules has shifted the goal of professional judgment from consideration of the best accounting treatment to concern for parsing the letter of the rule. To address these concerns, the Sarbanes-Oxley Act of 2002 required the SEC to examine the feasibility of a principles-based accounting system. The SEC rendered an interesting study that focuses on “objective-oriented” standards ( www.sec.gov/news/studies.shtml ). Accounting firm leaders have supported a move toward principles-based standards. Sam DiPiazza, CEO of
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This note was uploaded on 05/22/2011 for the course BU 36101 taught by Professor John during the Spring '11 term at University of Liverpool.