Survey findings show that there is strong support for a principles-based framework for financial reporting, with nearly 92% expressing a preference for principles with additional guidance. When asked where IFRS is currently positioned on the continuum of principles versus rules, 16% said it is very rules dominated and 56% said it is mainly rules. Compared to the situation five years ago, 67% said IFRS is now more weighted towards rules, 15% think there is no change and 18% think it is more weighted towards principles.
Survey respondents overwhelmingly believe that the impact of the financial crisis and the outstanding decision on US convergence will lead to more rules-based accounting standards in the future. On the positive side, most respondents believe that both preparers (89%) and auditors (84%) are capable of operating within a principles-based framework. The survey asked participants to rate 17 suggested barriers to principles-based accounting standards. The accompanying two exhibits show the five items that were rated the most significant barriers and the five items that were rated the least significant barriers.
Education and professional development of accountants are
seen as crucial, as are strong ethical guidelines. In addition, the need for a
change in mindset by regulators is seen as essential given that there may be a
range of acceptable outcomes when professional judgment is exercised.
Furthermore, there is a need for guidance to help put principles-based
standards into operation, including the use of case studies to demonstrate the
application of principles.
Overall, the survey results suggest that there is a need to
ensure judgment remains the cornerstone of the accounting profession and
financial reporting. For more information, read the research article “Principles
or Rules?” in The CA Magazine,
December 2011 (Volume 115, Number 1265), pages 90-91. For details, contact Michelle Crickett, ICAS Director of
Research.
