The debate over which is the better accounting standards philosophy—principles or rules—has persisted for decades with no end in sight. It’s a healthy debate. Principles written at too high a level result in issues with comparability and other challenges, but excessive rules result in unnecessary complexity and invite structuring. Having spent 40 years in this space as a U.S. auditor and preparer and for several years as an IASB member, I have the benefit of seeing this issue from several perspectives. I have no doubt that a principles-based approach to establishing accounting standards is, without question, the better way to go. However, a principles-based approach is only successful when several preconditions are present—some technical, some mindset—which is the focus of this article.
It starts with a robust conceptual framework
