Principles based accounting as an accounting method which is used as a Essay

Principles based accounting as an accounting method which is used as a conceptual basis by accountants - Essay guinea pigThis system follows principles. The term principles can be used simply to refer to general rules, or in like manner to suggest that these rules are implicitly higher in the implicit or explicit hierarchy of norms than more than diminutive rules they express the fundamental obligations that all should observe (Black et al, 2007). Some of the rules set out are mandate to follow but many other rules are used as a mere advocate and are not applicable to every situation. For instance, many countries pass adopted the International Financial inform Standards governed by the IASB. According to Securities and Exchange Commission of US, the optimal principles-based accounting banner involves a concise narration of substantive accounting principle where the accounting objective has been incorporated as an integral part of the standard and where few, if any, exceptio ns or internal inconsistencies are included in the standard (2002). Rule-based accounting is a set of detailed rules which must be followed when monetary statements are wide-awake. An example of such(prenominal) system is Generally Accepted explanation Principles (GAAP). In US, GAAP is used as a standard framework of guidelines for financial accounting. CPA firms and corporations in US prepare and present their business incomes and expenses, assets and liabilities in their financial statements following GAAP. ... The financial statements are prepared for the users who have reasonable knowledge of business, accounting and economic activities and a willingness to study the financial statements (IASB model, Para 25). The users of financial statements are of various types and their needs are different which are required to be catered efficiently because they have to make crucial economic decisions on the basis of financial statements. IFRS requires the financial statements to presen t a accredited and fair view of the financial state and economic activities of an entity. When a set of given rules is followed uniformly by all the entities in each financial year, comparability increases. A user may compare an entitys financial standing with that of another entity or even with that of its own in the preceding years. In array to attain this uniformity, the rules are required to be followed but there are cases where following the rules becomes very difficult. For instance, the IFRS itself admits in the Framework that there is a trade-off between relevance and reliability. One must be forgone to help oneself the benefit of another. In a given case, preferring relevance over reliability might be utilizable for specific set of users but might not be useful for another set of users. The Framework has emphasized that the preparer or auditor of financial statements must exercise his professional judgment in such cases so that the information becomes more synchronized with the objectives of IFRS. One of the worst economic crises in history has been set about by the world recently. There are many studies and professional opinions that the fair value system is creditworthy for it. This system is more