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Principle

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Submitted By damansandhu
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Heston E Cummings, Daman Sandhu, Jamiel Najmeddine

Principle or rules based accounting
Heston E Cummings, Daman Sandhu, Jamiel Najmeddine

Principle or rules based accounting

Table of Contents
INTRODUCTION 3
Principle Based Accounting 4
Rule Based Accounting 6
CONCLUSION 7
REFERENCES …………………………………………………………………………………………… 8

Abstract
There have been lots of discussions about principle and rule based accounting approaches, mostly people view U.S GAAP as rule based and IFRS as principle based. In this paper we will examine advantages and disadvantages or both approaches. Finally which is more applicable in real world settings.

Introduction
After incidents like recession, there have been discussions about principles based versus rules based among accountants, governments. As multinational businesses are increasing, there is need is an increased demand for high quality comparable financial information. “Accurate and consistent information is essential if the allocation of financial capital is to truly reflect comparative advantage, encourage diversified investments, and minimize cost of capital”.(Jermakowicz & Mcguire, 2002).
If we look at two major accounting bodies, IFRS and US GAAP. “The IFRS emphasizes the fundamental importance of standards that focus on principle, drawn clearly from IASB’s conceptual framework, rather than on detailed rules”. (Jermakowicz & Mcguire, 2002). “This approach requires both companies and their auditors to exercise professional judgment in the public interest, by requiring preparers to develop financial statements that provide a faithful representation of all transactions and requiring auditors to resist client pressures”. (Jermakowicz & Mcguire, 2002).

Principle Based Accounting
There is no exact definition of principle based accounting. Most often it is described as a method where an auditor uses

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