Graduation Year
Fall 2013
Document Type
Open Access Senior Thesis
Degree Name
Bachelor of Arts
Department
Economics-Accounting
Reader 1
Marc Massoud
Rights Information
© 2013 Nicholas A. Gillette
Abstract
The principles versus rules debate has long since been a conversation in the accounting world, but the conversation heated up in the early part of the 21st century on the heels of a few highly publicized accounting frauds. In an increasingly globalized business environment, convergence between the more rules-oriented US GAAP and more principles-oriented IFRS is becoming more and more relevant. This study attempts to better inform that debate, exploring the accounting conceptual framework, United States legal environment, and the costs and benefits of adopting a more principles-oriented set of accounting standards. This study concludes that, though there would likely be some costs initially, principles-oriented standards give managers the ability to produce more relevant, comparable, and reliable financial statements, and can even serve to deincentivize fraudulent behavior. By adjusting the incentive structure, managers would no longer be offered protection by bright-line rules, instead required to more faithfully represent the economic reality of their firm. However, though rules-oriented standards like lease accounting are in need of improvement, due to the complex nature of some transactions, not all standards can be solely principles-oriented. As such, the FASB should develop a propensity away from rules, detailed guidance, and exceptions whenever possible.
Recommended Citation
Gillette, Nicholas A., "Exploiting the Gaps in GAAP: A Look at the Principles Versus Rules Debate" (2013). CMC Senior Theses. 725.
https://scholarship.claremont.edu/cmc_theses/725
