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The case for principle-based accounting

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Jun 21, 2016

On June 21, 2016, the International Accounting Standards Board (IASB) released an editorial first published in Compliance Week where Gary Kabureck, IASB member, discusses the importance of principle-based accounting, focussing on clear communication, respecting reasonable judgement and understanding user needs.

The debate over which accounting standards philosophy is better—principles or rules—has persisted for decades with no end in sight. It’s a healthy debate. Principles written at too high a level result in issues with comparability and other challenges but excessive rules result in unnecessary complexity and invite structuring.

Having spent 40 years in this space as a US auditor and preparer and for several years as an IASB member, I have the benefit of seeing this issue from several perspectives, and I have no doubt that a principle-based approach to establishing accounting standards is, without question, the better way to go.

However a principle-based approach is only successful when several pre-conditions are present—some technical, some mindset—which is the focus of this article.

Read the editorial on the IASB's Web site.

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