Principles-based and rules-based accounting
A principles-based approach emphasises objectives and underlying concepts, requiring judgement in applying them to varied transactions. A rules-based approach tends to provide more detailed prescriptive requirements. Actual frameworks contain both principles and detailed requirements; a principle does not permit an entity to disregard a specific applicable standard.
Worked example
A transaction has features not explicitly illustrated in a standard. The preparer analyses the relevant requirements and the economic substance, documents its judgement and considers required disclosures.
Common mistake
Assuming principles-based standards permit any convenient accounting policy, or that a detailed rule eliminates all need for judgement.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Supporting | September 2026–June 2027 |