Conceptual Framework

Question 1

Purpose of Accounting Standards

Answer 1

Improve transparency of financial statements

Question 2

What is an accounting standard

Answer 2

Common set of principles, standards, and procedures that define the basis of financial accounting policies and practices

Question 3

What is a rule based accounting system

Answer 3

System which relies on a series of detailed rules that prescribe how financial statements should be prepared

Suggests a ‘tick box’ approach. Means every company must comply with all the rules and not deviate from them

Example GAAP (Generally Accepted Accounting Principles), adopted in USA

Considered less flexible but more comparable than principle based system

Question 4

What is a principles based system

Answer 4

system relies on generally accepted accountingprinciples that are conceptually based and are normally underpinned by a set ofkey objectives.

Suggests a comply or explain policy. Every entity must comply with the set of principles or have a reasonable explanation for deviation from the principles.

Question 5

Differences Between Principles and Rules Based Systems

Answer 5

Decision making

Legal Aspects

Flexibility

Application

Standardization