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An examination of the perceptions of auditors and chief financial officers regarding principles versus rules based accounting standards

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  • McEnroe, John E.
  • Sullivan, Mark

Abstract

The debate over the adoption of International Financial Reporting Standards (IFRS) by United States issuers, or its convergence with U.S. Generally Accepted Accounting Principles (U.S. GAAP) has been going on for several years now. However, as of this writing, the Securities and Exchange Commission (SEC) has still not taken a definitive position on the issue. This is in part due to issues involving the cost of adoption, independence concerns relating to the IFRS promulgation body, the International Accounting Standards Board (IASB), and the debate over which type of accounting standards is superior for financial reporting: IFRS, which are said to be “principles-based,” or U.S. GAAP, which are said to be “rules-based.” In this paper we examined the views of two stakeholders in the U.S. financial reporting system, auditors in large public accounting firms and Chief Financial Officers in the Fortune 1000. We elicited their perceptions involving ten situations where specific rules are incorporated in U.S. GAAP. We asked if the elimination of the specific rule would be likely to better achieve the “qualitative characteristics of useful financial information” as defined by the Conceptual Framework for Financial Reporting adopted by the Financial Accounting Standards Board (FASB) in 2010 (FASB 2010) and the similar document adopted by the IASB at the same time (IASB 2010). We found that in eight of the ten situations both groups preferred the rules-based accounting regime (the current U.S. GAAP rules) over a principles-based approach.

Suggested Citation

  • McEnroe, John E. & Sullivan, Mark, 2013. "An examination of the perceptions of auditors and chief financial officers regarding principles versus rules based accounting standards," Research in Accounting Regulation, Elsevier, vol. 25(2), pages 196-207.
    • Handle: RePEc:eee:reacre:v:25:y:2013:i:2:p:196-207
    DOI: 10.1016/j.racreg.2013.08.008
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    References listed on IDEAS

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    1. Anna Bedford & Martin Bugeja & Nelson Ma, 2022. "The impact of IFRS 10 on consolidated financial reporting," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(1), pages 101-141, March.
    2. Mintchik, Natalia & Moehrle, Stephen & Reynolds-Moehrle, Jennifer, 2024. "Evolution, trends, and recent developments in international accounting studies: A synthesis of evidence published in “Research in Accounting Regulation”," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 57(C).
    3. Braun, Gary P. & Haynes, Christine M. & Lewis, Tom D. & Taylor, Mark H., 2015. "Principles-based vs. rules-based accounting standards: The effects of auditee proposed accounting treatment and regulatory enforcement on auditor judgments and confidence," Research in Accounting Regulation, Elsevier, vol. 27(1), pages 45-50.
    4. Franzen, Laurel & Meckfessel, Michele & Moehrle, Stephen R. & Reynolds-Moehrle, Jennifer A., 2015. "Developments in accounting regulation: A synthesis and annotated bibliography of evidence and commentary in the 2013 academic literature," Research in Accounting Regulation, Elsevier, vol. 27(2), pages 138-159.

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