Research Description:

Rules Vs. Principles: The Feasibility of the Principles-Based Approach to Accounting Standards Setting

As a University Scholar, I am researching and plan to address the feasibility of a recently proposed plan to adopt a principles-based approach to standard setting in Accounting. The Financial Accounting Standards Board (FASB) has given consideration to current debate about the state of the financial accounting standards. Many argue that the standards have become too detailed, complex and rule-driven and that a principles-based (as opposed to rules-based) approach would better promote the primary qualities of relevance and reliability. In response to the arguments, the FASB has proposed this principles-based approach which would not leave room for exceptions and provide much less interpretive guidance. Thus, the principles would rely on more professional judgment from the accounting profession. I will provide research that will discuss whether the principles-based approach is feasible in relation to its alleged effect on: (1) the ability of accounting professionals to more easily find and interpret accounting standards, (2) the degree of implementation guidance provided with accounting principles, (3) the degree to which aggressive and fraudulent reporting exists among both preparers and auditors, (4) the globalization of accounting standards setting and (5) the ability of enforcement agencies to regulate accounting practices in an extremely litigious environment.