Accounting management help on: Principles Based Accounting Standards

Accounting management help on: Principles Based Accounting Standards

IntroductionThe critical review has been done on the Principles Based Accounting Standards Journal written by the Katherine Schipper and he is the member of the FASB. After done the critical analysis of the Principles Based Accounting Standards Journal written by the Katherine Schipper, it has been reviewed that some current discussions of the financial reporting of the U.S comprise explicit or implicit suggestions which shows that U.S leave the existing rules-based structure in support of  principle based structure  with allegation that few or all of existing obstacles experiencing financial reporting of the US could be eliminated or alleviated by such kind of shift. In summation, Sec 108 of Sarbanes Oxley Act of the 2002 suggests the SEC to transact the learning on the acceptance of the principles related accounting system. The learning is required to have 4 components such as the degree to which the principles –related accounting system survives in U.S, the time needed to alter such type of system, the viability of the system and the economic evaluation of the usage of the principles related system.

Critical ReviewIt is reviewed that the author discussed the rules-related components and pose questions on how the rules related components impact the reliability, relevance, comparability of the reported numbers (Schipper, 2003). It is viewed that the author Schipper has considered the possible attributes of the principle related standards and offer the specifics of existing reporting system and few possible impacts if reporting standards of the US were to move as to reveal those attributes. It is viewed in the journal that the author has stressed that detailed suggestion is required for achieving the comparability and raises the empirical question and how much the comparability actually presents in the financial reporting of the U.S. The author has also commented that whether the presence of the detailed guidance fulfills the institutional requirements of the auditors and preparers in transacting with the agencies of the enforcement and with the litigation threat. The Schipper has also speculated that how the behavior may alter if the standards of the US were to abolished most and the treatment exception and offer the much minimized level of the implementation guidance.It is reviewed that Schipper has described that how each rules related attribute of the US GAAP  supplements the complexity and length of standards and how the each attribute associates to one and more of basic components of Conceptual framework: relevance, comparability and reliability. It is very clear from the journal that principles related standards needs all financial components to be computed at the fair value (Damodaran, 2002).  It is reviewed from the journal that the author believed that there is no as such systematic confirmation on question of the detailed accounting suggestion has any impact on the cost and incidence of the litigation. For examining such type of impacts, it is essential to evaluate the particular allegations created in the litigation. If allegations comprise violations of the wider principle, then the absence or presence of claims and details about sticking to details views less relevant (Nelson, Elliott & Tarpley, 2002). It is the empirical question and whether the move towards least detail in standards could have noticeable impact on the litigation.

EvaluationIt is evaluated that the Katherine Schipper initiated with the argument that the US GAAP is related upon recognizable group of principles obtained from the Conceptual Framework of the FASB, but however comprises components which cause few commentators for concluding that the accounting of the US is rules-based. The Schipper highlighted that rules-based components and raise queries about how components impact the relevance, reliability and comparability of the reported numbers. After doing the analysis of the Journal, it has been reviewed that the current implementation of Sarbanes Oxley Act 2002 has possible implications for acceptance of principles related reporting standards (Beaver & Landsman, 2001). According to the author this Act considered as offering of prescriptive and detailed guidance on the corporate governance at federal level with stress on the issues associated to the auditing and financial reporting. In this journal, the author has offered few conjectures about the potential consequences of the move towards the standards without alternatives and exceptions and least detailed implementation suggestion.  It has been evaluated that according to the author there is no any systematic proof on the query of whether the detailed accounting suggestion has any consequence on the incidence and the litigation cost. There are few consequences of the detailed implementation suggestion such as Enhanced Comparability, Enhanced Verifiability, opportunities for the earnings management and Litigation and Enforcement (Spooner & Andrew, 2008). There are 2 possible consequences of the detailed implementation suggestion are of great interest to the auditors, preparers and regulators. For examination of how the principles are implemented in the standard setting, the Schipper described two examples comprising the actual and hypothetical standard. These kind of descriptions concentrate on issues experienced by standard maker in forming of the principle on which the standards are to be based.

ConclusionAt last, it can be said that according to the author of the journal is reporting standards of the U.S in general are based upon principles and obtained from conceptual framework of the FASB, but reporting standards also comprise components like treatment and scope exceptions and the detailed implementation guidelines which create them to look as rules –based. The author discussed the impacts on relevance, reliability and comparability of rules based components with the special consideration to consequences of the detailed implementation suggestion. The author has emphasized that the detailed suggestion is required for achieving the comparability and raise the empirical question like how much the comparability aspect actually presents in the financial reporting of the US.

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