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By: Anju Mehta Sonali Sharma Smarika Chandrakar

ACCOUNTING STANDARDS
AS are the defined accounting policies issued by gov. or expert institute. The standards are issued to bring hormonization in follow up of accounting policies.

Rules based standard

Principle based standard

RULES VS PRINCIPLE BASED AS


3 issues Limitation of rules based models Principle base model & fraud Role of accounting standard

RULES BASED STANDARDS


Standards may take the form of series of rules, limiting the flexibility & use of judgement allowed in their implementation. Very detailed & precise Tends to look for a one method fits all. Would effectively eliminate much of the time discretion associated with current financial reporting guidelines. Rule-based standards are generally considered easier to audit for compliance purposes, and may produce more consistent and comparable financial reports across entities.

CONTD
Permit some choices in handling a transaction, but would be extremely limited. Enhances comparability among companies, it is often constraining & can be difficult to apply to many of todays new complex & creatively structured financial transactions. may include a lack of flexibility with regard to changing conditions and new products, hence requiring almost continual maintenance at times.

PRINCIPLE BASED STANDARD


Accounting standard may take the form of general principles, relying on interpretation & judgement by the financial statement prepares before they can be implemented. Model that provides clear guidelines allows flexibility Approach with the openness in thought & disclosures actually helps uncover the fraud more readily. Its broad guidelines can be practical for a variety of circumstances.

CONTD
potentially very flexible with regard to new and changing products and environments. As such, they should also require less maintenance more difficult to audit relative to compliance, and concern over consistent and reliable interpretations across entities. To the extent that they rely on individual judgment to interpret and implement the standards, there is a danger that they can be used to manipulate financial results.

ROLE OF ACCOUNTING EDUCATORS

Our rule based memorization, doesnt prepare students for the ambiguous business world they encounter upon graduation.

Should provide opportuninties to experience principle based decisions in action.

Should consider degree requirements in total

CONCLUSION the information provided in the financial statements is relevant, reliable and comparable across reporting periods and entities. Increased discussion has pushed accountants towards principle-based accounting, but it is recognized that the method needs to be modified to make it more effective and efficient.