Mac - Rules-based accounting is basically a list of...

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Rules-based accounting is basically a list of detailed rules that must be followed when preparing financial statements. Having a set of rules can increase accuracy and reduce the ambiguity that can trigger aggressive reporting decisions by management. The complexity of rules, however, can cause unnecessary complexity in the preparation of financial statements. Principles-based accounting such as generally accepted accounting principles (GAAP) is used as a conceptual basis for accountants. A simple set of key objectives are set out to ensure good reporting. Common examples are provided as guidance and explain the objectives. The fundamental advantage of principles-based accounting is that its broad guidelines can be practical for a variety of circumstances. Precise requirements can sometimes compel managers to manipulate the statements to fit what is compulsory. Therefore we agree with the use of the principle based standards, we will elaborate further below. The primary advantage of principles-based standards rests in its broad guidelines that can be applied to numerous situations . This means it’s flexible with regard to new and changing environments and requiring less maintenance. This means broad guidelines that can be applied to various situations. In addition, principles-based accounting standards allow accountants to apply professional judgment in assessing the substance of a transaction. Another advantage of a principles-based system is that it would result in simpler standards. Herz has claimed that a principles-based system would lead to standards that would be less than 12 pages long, instead of over 100 pages (BusinessWeek online, 2002). Principles would be easier to comprehend and apply to a broad range of transactions. F inally, the use of principles-based accounting standards may provide accounting statements that more accurately reflect a company’s actual performance because an increase in principles-based accounting standards would reduce manipulations of the rules ( Nationwide News , 2002).All of these points reflect that principle-based provide accounting statements that more accurately
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This note was uploaded on 11/09/2011 for the course MANAGEMENT 101 taught by Professor Agilxz during the Spring '11 term at Acadia.

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Mac - Rules-based accounting is basically a list of...

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