The content of accounting standards: Principles versus rules

The Global Accounting Alliance has raised a call for different perspectives on principles-based accounting standards. Based on prior studies this paper identifies a number of characteristics of principles-based accounting standards. It uses content analysis to empirically test whether the asserted characteristics are consistent with the IASB and FASB standards on interest costs. We find that rules-based standards, relative to principles-based standards, have more rules, more justification, acknowledge less judgement is required, have more bright-line thresholds, have more scope exceptions, and are more verbose and complex. The main drafting difference between a rules-based or principles-based approach is whether extensional definitions or intensional definitions are used. Several policy implications are noted.