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Advanced Financial Reporting and Theory

I am working on a 5000 words research on [Critically assess how the use of principles-based standards will aid effective standard-setting by the IASB, and aid decision-usefulness for stakeholders] Therefore I am looking for around 2000 words answer for the below questions I have:

1) Critically assess how the use of principles-based standards will aid effective standard-setting by the IASB, and aid decision-usefulness for stakeholders.
2) Who is the accounting standard board in UK? What are their objectives?
3) Who is the accounting standard board in US? What are their objectives?
4) Describe in detail the difference between the rules v principles debate, please provide generalised theoretical argument, with examples, about the rules v principles debate.
5) Critically debate the arguments of rules and principles, rather than a conclusion either way as to whether UK are moving towards or away from a rule or principle-based approach.
6) Critically debate whether the UK (via the IASB) is now moving back to a principles-based approach, after a spell at the beginning of the ASB's period of office where rules were definitely in (FRS1, for example).
7) Debate whether the US definitely has a rule-based approach at the moment, but has tasked a group to consider a possible move to principles-based standards. Whether the current convergence project between the FASB and the IASB is the result of this.

From the point of view of the link to accounting theory, you should consider the perspective of the standard-setters, their Worldview, Concepts, Assumptions, Assertions, Implications and Consequences.

2,154words, 7 references

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1. Principle based standards state that principles govern the process of standard setting. Principles are link between standard's requirements and conceptual framework, they specific how concepts in framework specify a particular standard. In principle based standard setting, there is little exception to principles, like if a standard makes exception from a principle for a particular type of transaction, the standard needs to define the transaction and needs to specify accounting need for it. The standards till date had been based on strict rules that focus on form rather than substance of the standard. Such standards allow financial and accounting engineering to maneuver transaction around rules. IASB would be able to provide accounting standards which would apply more broadly thereby providing few exceptions to the principles.
The principle based approach is designed to encourage professional judgment and discourage over reliance on detailed rules. The principle based system would allow more accountants to use their professional judgment in financial reporting. Since the rule based system provides a cover against liabilities and risk, many corporate are able to abide by rules and still mislead investors, the adoption of principle based system would take away this cover and allow for more efficient accounting standard which does not encourage formation of financial engineering tools. If principle based system is properly handled, it would promote professionalism and encourage compliance with both intent and spirit of standard. It would also aid stakeholders in making decisions aimed towards economic progress of the organization rather than accounting progress.
2. IASB is the accounting standard board in the U.K. Its objectives are (Hickey, Liz, n.d.):
• To develop, in the public interest, a single set of high quality, understandable and enforceable global accounting standards
• To promote the use and rigorous application of those standards
• To work actively to bring about convergence of national accounting standards and IFRSs
• To achieve harmonization in international accounting standards
3. FASB is the accounting standard board in the US. Its mission is to establish and improve standards of financial accounting and reporting that encourages financial reporting in a way that is beneficial to investors and other financial intermediaries. Its objectives are (McDonald, Linda, 2002):
• Ensuring that international accounting standards are of high quality
• Increasing the convergence and quality of the accounting standards used in different nations
• Participating in international accounting standard setting process to increase international comparability while maintaining high quality accounting standards
• Improve the common understanding of nature and purpose of information contained in financial statements and reports
• Identify areas of improvement in financial reporting and address them by standard setting process
• Keep standards upto date with the way organizations do business and changes in the economic environment
• Improve the usefulness of financial reporting by focusing on relevance and reliability and on qualities of comparability and consistency
4. Rule based accounting system is a financial system that encourages financial reporting based on detailed rules and methods for most of the accounting problems and provides a clear applicability of when and how it is to be applied. Rule based accounting standards have extensive and precise elaborations concerning what is allowed and what is not. This precision allows for a better ...

Solution Summary

The advanced financial reporting and theory is examined.