Rules Versus Principles-Based Pension Accounting Standards: an Analysis of Comparability

QUT Digital Repository: http://eprints.qut.edu.au/

Gordon, Isabel and Gallery, Natalie (2008) Rules versus principles-based pension accounting standards: An analysis of comparability. In: 16th Annual Conference on Pacific Basin Finance, Economics, Accounting and Management, 2 - 4 July 2008, Brisbane, Australia.

© Copyright 2008 Isabel Gordon and Natalie Gallery

RULES VERSUS PRINCIPLES-BASED PENSION ACCOUNTING STANDARDS: AN ANALYSIS OF COMPARABILITY

Isabel Gordon* University of Sydney Natalie Gallery Queensland University of Technology

Abstract Motivated by Schipper and Vincent’s (2003) comment that comparability in financial reporting is under-researched, this paper analyses the comparability construct in the context of pension accounting. In practice, compromises or rules introduced into pension accounting standards are not based on principles but result from political bargaining (Daley and Tranter, 1990). Current pension accounting standards in the USA, Australia and the international pension accounting standard are compared using a “theoretical” benchmark to present the economic substance of the transaction. To develop the theoretical benchmark, Barth and Clinch’s (1996) use of Ohlson’s (1989) clean surplus model is adapted to articulate the sponsor’s profit and loss and balance sheet so that compromises are highlighted. This paper concludes that a principles-based approach that emphasises the economic substance and clean surplus approach need not necessarily compromise comparability.

* Corresponding author: i.gordon@econ.usyd.edu.au

1 1. Introduction The debate about principles versus rules-based accounting standards focuses attention on the desirable qualitative characteristics of financial information and other conventions described in (conceptual) frameworks. In particular, it is argued that comparability and consistency declines as the use of principles-based accounting standards increases relative to rules or compliance-based...