Essay: Rule Based Approach of Accounting

Sample Essay

The time factor involved with issue of standards under the two approaches also determines which approach should be applied in setting standards. The time involved formulation and issue of standards under the principle based approach is much less than the time taken to prepare and issue standards under the rule based approach. The time required for implementation of standards under the principle based approach is also much lower it is quite flexible and accountants make decisions made on personal judgment rather than rigid rules and regulations.

The convergence of United States standards with International Accounting Standards is another important aspect of standard setting process as countries around the world apply  a principle based approach in setting standards while rule based approach is applied in Unite States o America for setting standards. This causes significant differences in values reported under both standards and is quite problematic for countries operating on a global scale. The financial statements prepared by these companies have to be reconciled with the international standards or American standards in order to interpret and analyze values in these statements.

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