Rule based vs Principle based PDF

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Rule based vs Principle based Variety of arguments are presented by the experts in favor and against the rule-based accounting system and principle-based accounting. Whereas, the rule-based accounting system consists of the set of rules to be followed when preparing the financial statements. On the other hand, the principle-based accounting system provides guidelines for preparing and recording of the transactions for various business situations (ICAEW, 2018). Meanwhile, the rule-based system has benefit for the accountants that they could not be held liable if the financial statements are incorrect because they have followed the rules, and rules also clear the problems, increase accuracy and reduce the ambiguity in the reporting. But, the complex set of rules can also lead to the problems in preparing the statements. In contrast, the principles-based accounting system provides broad guidelines for the accountants that could be implemented in the variety of business transitions or when preparing the financial statements of the company. However, the lack of guidelines can also make the principlebased accounting system more difficult to follow and might lead to unreliable and inconsistent reporting that could not be compared to one organization to another (ICAEW, 2018)....