Current Issues in Financial Accounting

Current Issues in Financial Accounting

Introduction 2

Principles-based approach 6

Strengths of the Principles-based approach 8

Weaknesses of the Principles-based approach 8

Critically appraise the Principle-based approach 9

Rule-based approach 11

Strengths of the rules-based approach 11

Weaknesses of the rules-based approach 12

Critically appraise the rules-based approach 13

Conceptual Framework 15

Creative Accounting 16

Ethics 19

The Harmonisation of NZ, Australia and International Accounting Standards 21

Australian influence over New Zealand standards 22

What are the International standards that New Zealand companies debating against Intangible Assets 24

The Brand Debate 24

Political Agenda to harmonise with the international accounting standard. 26

Cultural differences 28

Conclusion 29

Bibliography 32

Introduction

Critically appraise the relative merits of the rules vs. principles based approach to accounting standard setting.

The article by K.Schipper highlights the US recent discussion relating its current accounting standards (GAAP), and the talk of moving from a rule based system to a more principles based accounting standard. It discusses section 108 of the newly introduced Sarbanes-Oxley Act, which instructed the Securities and Exchange Commission to study the adoption of a principles based system (extracts taken from this article are discussed in more detail in following sections).

The history behind the Sarbanes-Oxley Act of 2002 was a government driven law prompted by the rash of corporate accounting scandals e.g. WorldCom, Enron etc. These scandals hit the USA capital market very hard and reduced consumer confidence in corporate accounts and the accounting profession in general.

The USA government (under President George Bush) responded with his talk of stricter literature and tougher disclosure requirements and followed this by a 10-point plan to improve corporate governance in...