In: Accounting
B. Globally, accounting standards are developed based
on different methods. It is generally agreed that the
nature of accounting standards depends on the systems of
regulation. It has been argued that there are two
main systems of regulation.
Required:
Identify and explain the difference between the two systems of
regulation, stating clearly which system
you believe describes the International Financial Reporting
Standards (IFRS)
Explanation :
The accounting standard used worldwide are based basically two systems of regulation
1. Principle based accounting standard.
The accounting standards formed using principle based system of
regulation are used as international accounting standard which
explains how to record a particular transaction or event in
financial statement.
These accounting standards are generally issued by international
accounting standard board (ISAB). These accounting standards are
developed using common accounting language.
The financial statements prepared using accounting standards are
similar in nature and can be easily compared with companies of
different countries.
2. Rule based accounting standards
The accounting standards formed under rules based system of
regulation guides accountants of company while compiling the
financial statements of a company about accounting principles and
accounting standards to be used for preparation of financial
statements rule based accounting standards adrress item
classification, revenue recognisation etc.
It helps the investors in understanding the position of a company
in better manner and make investment decisions.
IFRS falls under principle based accounting system regulation method and is used worldwide.