The main problem with the rule based or concept based accounting is the inflexibility of these standards where no room is left for personal judgment and discretion and accountants have to strictly follow the standard outline. If a standard states that a certain method has to be applied for valuation of inventories or assets then the accountant would have to follow this criterion ignoring any other method. This approach to setting standards is more widely used in United States of America as compared to other countries of the world (Godfrey and Chalmers 2007).
The rule based approach has been applied by Financial Accounting Standards Board to make the information presented by companies to shareholders and investors more reliable. Setting standards based on rules rather than principles has a lot to do with the fact that many people have manipulated financial reporting based on personal judgment and have eventually committed false representation of information either willingly or unwillingly. Albeit standards based on rules provide more detailed information in financial statements they consume much time during the standard setting phase and when they are truly applied by accountants. The standards under this approach provide strict rules and regulations for accountants to be followed in preparation of financial statements, estimation and valuation of elements included in these financial statements and disclosure of these elements (Benston, Bromwich and Wagenhofer 2006).
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