Is IFRS principles based or rules based?
Similarly, is GAAP rules or principles based?
Principles Based vs. One of the major differences lies in the conceptual approach: U.S. GAAP is rule-based, whereas IFRS is principle-based. The inherent characteristic of a principles-based framework is the potential of different interpretations for similar transactions.
One may also ask, why is IFRS principles based? IFRS was established for the purpose of making a single set of global accounting standards, which enables investors easily to compare financial statements of companies located in different countries. Such descriptions in IFRS are hence called “principles-based” standards.
Simply so, what is the difference between rules based and principles based accounting standards?
Rules based accounting: It means that every company following a rules based system must comply with all the rules and regulations and must not deviate from the rules. GAAP (Generally Accepted Accounting Principles) is a rules based accounting system. GAAP is an approach or method used in United States.
What is principle based approach?
A principles-based approach seeks to set principles that specify the intention of regulation, rather than set rules detailing requirements of a financial institution.