Moving toward a principle-based approach to U.S. accounting standard setting

A demand for procedural justice and accounting reform

Wendy Bailey, Kimberly M. Sawers

    Research output: Contribution to journalArticle

    1 Citation (Scopus)

    Abstract

    In the wake of numerous accounting scandals in the early 2000s, the U.S. began considering a move away from a more rule-based approach to accounting standard setting and toward a more principle-based approach to accounting standard setting. Although it is often assumed that this move toward a more principle-based approach is driven by stakeholder preferences, we examine whether this move is driven by demands for procedural justice. Specifically, we analyze one hundred and two comment letters submitted in response to the Financial Accounting Standard Board (FASB) proposal for principle-based standards. We find respondents from different stakeholder groups (preparers, accounting professionals, regulators, users, and academia) do not express a unified preference for rule-based or principle-based standards. We do, however, find that respondents identify benefits and costs of principle-based standards that map into the six elements of fair procedures (representativeness, accuracy, bias suppression, consistency ethicality, correctability). These elements are significantly associated with both the respondent's degree of support for the FASB proposal and the perceived quality of principle-based standards.

    Original languageEnglish (US)
    JournalAdvances in Accounting
    DOIs
    StateAccepted/In press - Jan 1 2018

    Fingerprint

    Procedural justice
    Accounting standard setting
    Principles-based standards
    Stakeholders
    Rule-based
    Financial accounting standards
    Costs and benefits
    Scandal
    Perceived quality

    Keywords

    • Principle-based standards
    • Procedural justice
    • Rule-based standards

    ASJC Scopus subject areas

    • Accounting
    • Finance

    Cite this

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    abstract = "In the wake of numerous accounting scandals in the early 2000s, the U.S. began considering a move away from a more rule-based approach to accounting standard setting and toward a more principle-based approach to accounting standard setting. Although it is often assumed that this move toward a more principle-based approach is driven by stakeholder preferences, we examine whether this move is driven by demands for procedural justice. Specifically, we analyze one hundred and two comment letters submitted in response to the Financial Accounting Standard Board (FASB) proposal for principle-based standards. We find respondents from different stakeholder groups (preparers, accounting professionals, regulators, users, and academia) do not express a unified preference for rule-based or principle-based standards. We do, however, find that respondents identify benefits and costs of principle-based standards that map into the six elements of fair procedures (representativeness, accuracy, bias suppression, consistency ethicality, correctability). These elements are significantly associated with both the respondent's degree of support for the FASB proposal and the perceived quality of principle-based standards.",
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