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Advantages and Disadvantages of Principle Based Accounting Standards

Autor:   •  March 8, 2011  •  Essay  •  455 Words (2 Pages)  •  17,120 Views

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it should describe the demerits of principle based accounting principle as well as what are the challenges of using these accounting standard in different perspectives. it should also contain the advantage of the accounting standard and also the benefits arising form using the principle based accounting standard.

A lack of precise guidelines could create inconsistencies in the application of standards across organizations. With no precise guidelines, how should companies determine if liabilities are probable or only reasonably possible?

Accounting standard is not flexible enough to deal with all the dilemmas faced by nations with differing problems and circumstances. Therefore this will cause the standards to be permissive and inadequate.

Accounting standard may cause companies to have to deal with the national, social, political and economic pressure which will be more hard forced down to comply with additional complex and costly requirements. This is due to the vested interests in maintaining their own standards and practices which have developed from widely different perspectives.

Accounting standard could prove dangerous to the companies as the standards could cut profits and inject volatility into the balance sheets of the companies. Therefore the companies must educate there investors about the effects of these standards will have on their reported profits and liabilities.

Accounting Standards facilitate uniform preparation and reporting of general purpose financial statements published annually for the benefit of shareholders, creditors, employees and the public at large.

The standards issued should be consistent with the provisions of law. Thus, they are very useful to the investors and other external groups in assessing the progress and prospects of alternative investments in different companies in different countries.

Accounting standards will help public accountant to deal with their clients by providing


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