IAS-how the US is adopting a principle-based approach
Introduction
International Accounting Standards, IAS, is a term used in reference of a set of principles, guidelines and standards prepared by the International Accounting Standards Committee for the purpose of assisting business entities in ensuring that the information captured in their financial information is accurate and reliable (Vincent et al, 2003). This is achieved by highlighting how various accounting/financial activities and transactions are to be reflected during the preparation and presentation of these statements (Schipper, 2008). Even though the IASC doesn’t have any legal authority to compel organizations to comply with these standards while they are preparing their accounts, reports and statements, it usually collaborates with the governments of many countries, such as that of U.S, to ensure the enforcement of these principles. The setting of the IAS takes a principle-based approach considering that instead of formulating stringent rules to be complied by all entities, IASC provides a conceptual framework that is to be followed by all accountants and auditors while they are purporting their undertakings (Schipper, 2008).
The U.S government has been agitating all firms, especially public entities, to embrace the principle-based approach as opposed to the rules based standards considering that the latter compromises the ability of accountants to exercise their judgments while preparing financial statements (Nobes, 2005). The country’s preference for the IAS/principle-based approach can also be attributed to its flexibility as depicted by the ability of its standards, guidelines and principles to be used in a wide range of situations (Nobes, 2005). However, many allegations have been raised in relation to the move to adopt this approach as a result of the various shortcomings associated with it.