A Study On Accounting Standards Setting Approach: The Competition Between Principles-Based And Rules-Based

Since the Enron's financial scandal had been exposed,the rules-based accounting standards,the American are always complacent about,have been found to be blame. Some findings suggest that the over-specific US GAAP,which to some extend masks the economic substance and the spirit of the standards and thus,blurs the users' eyes, is one of the key elements contributing to the Enron' scandal.Unfortunately,it is this undesirable feature of the US GAAP that allow Enron to attempt to structure transactions and circumvent the specific standards,which virtually causes the Enron's falling down.Afterwards,the issue of how to choose the appropriate approach to set the standards is greatly concerned.Obviously,the answer to that question will be beneficial for those standard setters.Nevertheless,too many researchers only invest in the pros and cons of both rules-based approach and principles-based approach,while they neglect the background where those standards originally came into being and evolved later.However,it seems necessary to observe those issues from a historical angle to get a full knowledge about the appropriate standards setting method.With the development and deepening of Chinese capital market,the role accounting standards play seems increasingly important.Thus,it is valuable to tackle the problems of standards setting through learning the lessons of the US GAAP setter the international accounting standards setter.Based on the theory of economic consequences,this dissertation historically analyzes the evolution of accounting standards and then examine the pros and cons of both rules-based and principles-based approaches.In the end,the dissertation concludes that the US GAAP is not originally rules-based as it is usually thought to be,but experienced an evolution from principles-based standards to rules-based standards.Logistically,this evolution is an inevitable process that accounting standards all over the world will experience.Besides,as for US GAAP,this dissertation finds that the transition it once went through from principles-based standards to rules-based standards seems to be bound to take place as a result of the strong pressure of litigation and "lobbying" in US as well as the unique confrontational culture of the US.In sharp contrast,the UK GAAP,which shares the same accounting mode with the US GAAP,otherwise embodies the principles-based feature which is shaped by the less strong pressure and the unique idea of "true and fair" in UK.When it comes to the international accounting standards,the lack of unified regulatory power and those relatively weak external factors,like the high level of litigation risk possessed by the US,make the international accounting standards principles-based.In the end,taken China's social-economic characteristics into consideration,the dissertation tentatively provides some suggestions as a conclusion.