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Position Paper Principles vs Standards Based Accounting The question posed was whether the recent scandals in corporate America would have occurred if GAAP for US businesses were more principle based like IASB International Accounting Standards rather than Standards based like the FASB US Standards After much research and investigation I have come to the conclusion that the presence of principle based accounting standards would not have prevented these scandals The US currently operates under a rule or principle based accounting system This system provides accounting standards that are extremely detailed that attempt to contemplate almost every application of the standard These rules operate much like a check-box system that eliminate judgments from the application of reporting Some examples of this rule-based system include accounting for derivatives and leasing This leaves little room for error as it sets the specific ways an issue is to be handled Although this system may seem like the best approach it does have its drawbacks The rule-based system has derived from several factors Demands for an answer to every question is the strongest factor Many times though general acceptance for an issue is difficult to obtain and therefore these standards are not very timely in getting set The IASB set of accounting standards is more principle based This means that the standards are less detailed and more left open to interpretation by the preparer of financial statements Acceptance of these principle based standards are easier to facilitate as it can be seen the many ways that these rules may be interpreted Preparers of financial statements are not limited to a strict set of rules that may not apply to their independent situation As you can see both of these systems have their benefits and problems Therefore I can not say whether a system of absolute rules or a system of absolute principles would be better A combination of the two systems would be the best approach If
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