ICAS survey: Principles not rules

To mark the tenth anniversary of the publication of ‘Principles not rules:  a question of judgement’, ICAS recently surveyed members with an interest in corporate and financial reporting on their views on this debate.  A similar survey was undertaken in 2011.

199 ICAS members responded to the survey and the key findings were as follows:

  • 90% of respondents had a preference for principles;
  • 64% believe IFRS is very or mainly rules based
  • 61% think that IFRS has become more rules based in the last five years
  • There was very strong support for the idea that the profession is capable of operating within a principles based environment
  • The main barriers to principles-based standards were considered to be:  the influence of US GAAP; the role of regulators in challenging judgements; the threat of litigation and lack of trust in preparers and auditors.

The full results are summarised below.

1. What is your preference for a financial reporting   framework? Should it be based on:

Answer Options

Response Percent

Response Count

Principles only

3.0%

6

Principles with minimal additional guidance

26.4%

52

Principles with additional guidance or rules

61.4%

121

Principles   with additional detailed rules

8.1%

16

Detailed rules only

1.0%

2

2. Where on the spectrum of principles and rules do   you believe IFRS is currently positioned?

Answer Options

Response Percent

Response Count

Very rules dominated

16.4%

32

Mainly rules

47.7%

93

Balanced

25.6%

50

Mainly principles

9.2%

18

Very principles dominated

1.0%

2

3. To what extent has IFRS changed over the last five   years towards rules or principles?

Answer Options

Response Percent

Response Count

Now substantially more weighted towards rules

20.4%

40

Now slightly more weighted towards rules

40.8%

80

No change

18.4%

36

Now slightly more weighted towards principles

19.4%

38

Now substantially more weighted towards principles

1.0%

2

4. In retrospect, what impact do you think the   financial crisis had on the campaign for principles-based standards?

Answer Options

Response Percent

Response Count

Made rules-based standards much more likely

43.9%

86

Made rules-based standards slightly more likely

33.7%

66

No impact

9.2%

18

Made principles-based standards slightly more likely

10.2%

20

Made principles-based standards much more likely

3.1%

6

5. As the influence of IFRS expands across the globe do you think that financial reporting will become more rules or   principles-based in the future?

Answer Options

Response Percent

Response Count

Substantially more rules-based

29.8%

57

Slightly more rules-based

38.2%

73

No change

5.8%

11

Slightly more principles-based

23.0%

44

Substantially more principles-based

3.1%

6

6. Do you think that a professional judgement framework, which outlines the procedures that a preparer or auditor should   consider in reaching a judgement and the matters to be documented, is useful in applying a principles-based framework?

ICAS issued such a document in 2010

Answer Options

Response Percent

Response Count

Very useful

58.6%

112

Slightly useful

36.1%

69

Not useful

2.6%

5

Unhelpful/additional burden

2.6%

5

7. Do you believe that the accounting profession (preparers and auditors) is capable of operating within a principles-based   framework?

Answer Options

Yes

No

Response Count

Preparers

153

38

191

Auditors

150

41

191

8. To what extent are the following barriers to   principles-based accounting standards?

Please rate each item on a scale of 1 to 5 where 1 is not a barrier at all and 5 is a very significant barrier.

Answer Options

1

2

3

4

5

Response Count

The IASB approach to standard setting

4

26

61

57

19

167

The influence of US GAAP 

2

6

25

59

76

168

Inability of preparers to apply professional judgement

19

46

48

46

10

169

Inability of auditors to apply professional judgement

21

55

40

38

15

169

Content of professional education

26

45

58

28

10

167

Unwillingness of preparers to apply professional judgement

8

51

45

46

18

168

Unwillingness of auditors to apply professional judgement

13

49

35

45

27

169

Lack of trust in preparers and auditors in following the spirit of the principles

1

27

45

61

34

168

The role of regulators in challenging judgements

6

17

36

64

45

168

The threat of litigation

3

18

27

64

56

168

Additional published guidance and interpretations

22

53

61

24

7

167

Potential lack of comparability between companies' financial statements

13

39

56

47

14

169

Difficulties of translating standards into other languages

40

53

42

29

5

169

Difficulties of applying principles-based standards in other countries

13

32

45

60

17

167

Insufficient guidance on how to make and document judgements

12

38

55

52

12

169

The complexity of transactions

13

36

42

60

18

169

Other

15

2

14

6

9

46

Topics

  • Corporate and financial reporting

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