Český finanční a účetní časopis 2008(1):7-19 | DOI: 10.18267/j.cfuc.253

Financial Statement's Standard Setting Strategy: Rules-Based or Principles Based?

Dana Kovanicová
Prof. Ing. Dana Kovanicová, CSc. - profesor; Katedra finančního účetnictví a auditingu,, Fakulta financí a účetnictví, Vysoká škola ekonomická v Praze, nám. W. Churchilla 4, 130 67 Praha 3; <kovanicd@vse.cz>.

In response to the sharp criticism of rules-based financial accounting standards as is presented especially by Sarbanes-Oxley Act of 2002, the U.S. Securities and Exchange Commission require the setters of these standards to accept principles-based strategy or ´objectivesoriented' strategy. This paper analyzes this strategy and indicates some of her shortcomings. We argue that (only) principles-based standards are a pure fiction, as their application cannot work without detailed rules that alone are able to limit subjective judgments. This argument is enhanced by the fact that in present the standards setting strategy is grounded on asset/liability approach, which is continually connected with measurement on fair value base.

Keywords: Accounting standards; Rules-based; Principles-based; Revenue, expense approach; Asset, liability approach; Fair value.
JEL classification: M41

Published: March 1, 2008  Show citation

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Kovanicová, D. (2008). Financial Statement's Standard Setting Strategy: Rules-Based or Principles Based? Czech Financial and Accounting Journal, 2008(1), 7-19. doi: 10.18267/j.cfuc.253
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