Standard Setting

Evidence shows that in some countries there is a preference for rules-based accounting standards whereas in other countries there is a preference for principle-based accounting standards. For example, U.S Generally Accepted Accounting Principles are said to be rulesbased, and German accounting principles form part of the German legal authoritative body in terms of which companies are required to conform with the German legal authoritative body.

Contrasting with the US and Germany, Australian accounting standards conforming with International Financial Reporting Standards are said to be principle-based. Additionally, in the European Union, conformity with principle-based International Financial Reporting Standards is mandatory for listed domestic companies.

Required

Evaluate and conclude the following two statements:

a) Accounting standard setters in countries having adopted principle-based International Financial Reporting Standards accounting standards are correct in believing that the advantages of principle-based accounting standards outweigh the disadvantages of principle-based accounting standards.

b) Accounting standard setters in countries maintaining rules-based accounting standards are correct in believing that the advantages of rules-based accounting standards outweigh the disadvantages of rules-based accounting standards.