Although there appears to be a widespread agreement that
principles-based standards are superior to rules-based standards, little has
been done to test this consensus. Accordingly, recent research was done to
investigate the perceptions of CPAs and CFOs in the United States. A survey was sent to a random sample of 500 CPAs who were practicing auditors from
public accounting firms that have substantial publicly-traded companies as
clients. The research instrument was also sent to 500 CFOs from the Fortune
1000.
The survey comprised 11 brief definitions of qualitative characteristics
of financial reporting along with demographic questions. To place the
respondents’ observations in context, the research focused on their views
regarding whether the two regimes were likely to attain the qualitative
characteristics of financial reporting included in the Conceptual Framework for
Financial Reporting updated by FASB in September 2010 and the corresponding
document updated by the IASB at the same time. Also included was a question on
professional judgment that was derived from a white paper, “Principles- Based Accounting Standards” published by the major accounting firms in 2008.
The research found that there were no significant
differences between the answers provided by auditors and the answers provided
by CFOs for any of the questions. The first observation to draw from the data
is that there is no consensus among CPAs that one accounting regime is better than
another along all the dimensions analyzed. The second observation is that there
is strong support for both regimes with respect to each concept. The third
observation is that there are a few concepts where respondents thought one
regime would have a very significant advantage over the other. For
example, with respect to whether financial statements will allow for the use of
professional judgment in considering whether the accounting representation is
consistent with economic reality, nearly all (91%) found a principles-based
regime to be preferable.
To learn more, read the article “CPAs’ and
CFOs’ Perceptions Regarding Principles-Based Versus Rules-Based Accounting
Standards” in the March 2012 issue of The CPA Journal. The research was
undertaken by John McEnroe, DBA, CPA, and Mark Sullivan, PhD, CPA, both in the
school of accountancy and management information systems at DePaul University,
Chicago, Illinois, USA. Also, refer to the ICAS paper “Principles- Based or Rules-Based Accounting Standards: A Question of Judgement” published in 2006.
