Initial post Consider the following statement: Many people believe that the U.S. Generally Accepted AccountingPrinciples (GAAP) are a rules-based approach to setting standards, while the International Financial
Reporting Standards (IFRS) are a principles-based approach.
For your initial post, discuss the validity of this statement and give examples with academic support to
justify your opinion.
Response posts (In your peer responses, respectfully compare and contrast your post to at least two
of your classmates’ comments.)
Response 1 –
(KR) I do agree with the statement that many people believe GAAP is rules-based and IFRS is principle
based. This view is even supported by accounting professionals. Accounting research has found that
GAAP tends to have more detailed rules and guidance whereas IFRS focuses more on principal and
allows for more judgment in applying those principles.
“Principles-based accounting systems are criticized for allegedly allowing businesses too much leeway
and failing to mandate openness with IFRS.” (Palmer, n.d.) and “GAAP might obstruct the creation of
financial statements through unneeded complexity.” (Palmer, n.d.)
Response 2 –
(JT) Since my 2nd term I started school It has been stressed the importance of the Generally Accepted
Accounting Principles or GAAP and what it does. Almost every class or every other class I have taken
has touched on it one why or another which goes into detail the set of standards or “rules” for
appropriate accounting procedures. As such the GAAP is the guidelines we go by here in the United
States (Palmer, 2021). There are 10 principles of the rules based accounting system: Regularity,
Consistency, Sincerity with an accurate representation of financial situation, permanence of methods , no
expectation of compensation, prudence with no semblance of speculation, continuity, dividing entries
across appropriate periods of time, full disclosures, and good faith and honesty (Palmer, 2021). There
is a bit of a difference between the two. The validity of advantage of principle based is it gives a
broad guideline for different scenarios that can arise within a company. The rules based GAAP system
on the other hand gives a more strict path to follow which can be a good thing to keep the company
out of legal troubles (Palmer, 2021). That is the one drawback that is criticized that principle based
gives a little to much leeway. However if you go with the GAAP guidelines that have more heavier
rules to follow may cause issues when preparing financial statements for auditors to review. An
example worth noting would be in the 90s when Enron declared bankruptcy.
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