The comparison between the rule based approach and the concept or principle based approach of setting standards presented the process of formulating standards. The advantages and disadvantages of both approaches identified provide a basis for evaluating the strategies and selecting a better approach from the two. The momentum of the debate on whether a rule based approach or concept based approach should be used increased in the light accounting scandals in various large corporations such as Enron and WorldCom and collapse of several banks and companies during the recent financial crisis. Several practitioners have suggested the use of principle approach of setting standards due to increased transparency, adaptability and easy application.
The standards formulated by using principle based approach as identified in the previous sections are easier to understand than the rule based approach. The flexibility of principle standards allow accountants to apply their personal judgment in various accounting transactions and focus on economic aspects rather than form of these transactions. The transparency is increased as the accountant can apply standards based on transactions and information in a specific company or industry.
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