Question

 Contrast rules-based versus principles-based accounting,

 Provide detailed scenarios (these can be case studies, articles, or any published accounting scenario within the last 5 years) in which GAAP and IFRS

would handle the situation differently.

Answer 1

As per policy, only one question is allowed to answer at a time, so answering question 1st here:

Answer 1)

The contrast of the Accounting based on Principles and based on Rules can be:

The accounting being done on the principle basis are accessed and analyzed globally because accounting principles are common everywhere. On the other hand, the accounting based on rules is useful to the similar group companies because rules-based accounting makes the accounts being framed to the specific requirement of the concern.

While drawing accounts on the rules basis, the accountant has to face a lot of difficult and complex rules which the Company’s Board has passed. But, when an accountant has to make accounts based on principles, find the making of accounts easy and convenient because principles are limited and not easily changeable.

The Principle based accounting would not provide any relax-city in making accounts but are very rigid and no concealment of any information is possible. Whereas, the rules are being framed in such a way that manipulation and concealment of information is applied in various kinds of situation.

The accounts framed on the rules are not reliable and shareholders and analyst could not able to compare the two companies results. While the principle-based accounts has common in all company’s accounts formation so two companies could be compared and analyzed to benefits.

Thus, the recommendation of the accounts experts is always to draw the accounts on Principle based and not Rules based.

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