Contrast principles-based and rules-based accounting standards. Why do these approaches to standard setting tend to converge according to Schipper?
What will be an ideal response?
ANSWER:
Rules-based standards are highly detailed, often have many exceptions, extensive implementation guidance is given, and they often have “bright line” distinctions. Frequently, the bright line distinction can be subverted by management.
Principles-based standards are shorter than rules-based standards and rely heavily on judgment ei-ther by management and/or the auditor to carry out the intentions of the standard setting agency in terms of relevance, reliability, or attaining “eco-nomic reality.”
According to Schipper, a principles-based approach would need extensive implementation guidance to enable it to work will. This would result in eroding the differences between the two approaches.
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