Principles-Based Accounting: The Case for Principled Judgment
Research on Professional Responsibility and Ethics in Accounting
ISBN: 978-1-78052-004-9, eISBN: 978-1-78052-005-6
Publication date: 20 May 2011
Abstract
According to the SEC, the proposed roadmap for adopting principles-based International Financial Reporting Standards (IFRS) is still a priority. The adoption of IFRS will ultimately demand greater emphasis on practitioner judgment (Mintz, 2010). This chapter focuses on the need for building the judgment skills of the practitioner. Our methodology follows a three-step process. We start with accounting standards, reviewing similarities and differences between “rules-based” and “principles-based” standards and conclude that, while applying any standard requires judgment, applying principles-based standards requires more judgment. We then focus on preparer incentives that can influence this requisite judgment. We use the “fraud triangle” to analyze the influence of incentives on judgment under each standards setting approach. Our third and most important step involves equipping practitioners to make judgments in the presence of incentives. We present and discuss a model that considers economic, social (legal), and ethical dimensions for making principled judgments in the presence of incentives and advocate-improved education for accountants in implementing that model.
Keywords
Citation
Stuebs, M.T. and Thomas, C.W. (2011), "Principles-Based Accounting: The Case for Principled Judgment", Jeffrey, C. (Ed.) Research on Professional Responsibility and Ethics in Accounting (Research on Professional Responsibility and Ethics in Accounting, Vol. 15), Emerald Group Publishing Limited, Leeds, pp. 47-73. https://doi.org/10.1108/S1574-0765(2011)0000015005
Publisher
:Emerald Group Publishing Limited
Copyright © 2011, Emerald Group Publishing Limited