Principles based accounting standards do not provide

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Principles-based accounting standards do not provide detailed rules for a variety of circumstances but rather are developed to provide general guidance that can be applied across a variety of circumstances. That is, they provide rules for broad application. By contrast, if numerous detailed rules are developed to cover a variety of circumstances (rules-based standards) then it is probable that standard-setters would not have considered all situations and therefore there will be an absence of general principles for particular unexpected transactions or events. This then provides financial statement preparers with some flexibility which may sometimes be used in an opportunistic manner. On balance we can probably argue that rules-based standards are more easily circumvented but there will be some people who argue to the contrary. 4.13 This is an interesting issue that should spark some debate. At issue is ‘objective and unbiased’ from whose view. Would the determination that some accounting information is objective and unbiased by a person in the IASB’s office in London be the same as a judgment made by somebody in Tehran? Students should be encouraged to discuss this point. Arguably, objectivity and perspectives of bias are not culturally independent hence, whether something is deemed to be objective and unbiased is dependent upon the cultural context in which that judgment is made. 4.14 Chapter 4 has provided numerous reasons for the differences in accounting rules that might operate between the three countries. For example, the extent of economic development within a country; the nature of the domestic business ownership and financing systems; the colonial inheritance or history of a company; cultural 8
difference; sources of finance; religion; different taxation systems; the relative strength of the accounting profession; and accidents of history. Arguably these differences are fairly limited within this sample of companies relative to some other countries—for example, some Middle Eastern countries. As a result, we could argue that the differences between the accounting methods used in the United Kingdom, The Netherlands and the United States are relatively minimal relative to the methods used in some other countries. 4.15 There are a number of reasons why the international standardisation of accounting standards will not necessarily lead to international standardisation of accounting practice. For example, the adoption of particular tax options could flow through to the financial statements. Given that taxation rules differ across countries this will contribute to international differences in accounting practices. Different countries will also be subject to different economic and political influences. As Ball (2006, p.15) states: Powerful local economic and political forces therefore determine how managers, auditors, courts regulators and other parties influence the implementation of rules.

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