There are several problems and disadvantages of rule based approach including difficulty in interpretation and application in contemporary accounting issues such as accounting for derivatives and hedging. These problems of the rule based approach make the principle based approach look more attractive for application of standards in carrying out various accounting activities including preparation of financial statements (Benston 2006).
The implementation of Sarbanes Oxley Act is one of the best examples of how rule based accounting standards and acts cause problems for professionals. The SOX was subject to a great deal of criticism after accountants starting following clauses of the act in the process of accounting. The main problem was caused due to lack of comprehensive guidance and interpretation of the act and several rules outlined in the act were quite contradictory to accounting practices being followed throughout the industry. The Sarbanes Oxley Act caused major problems to organizations that had to comply with the act irrelevant of the size or the fact that compliance with the act could result in misstatement (Barron 2009).
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