Why Consistency of Accounting Standards Matters: A Contribution to the Rules-Versus-Principles Debate in Financial Reporting

27 Pages Posted: 1 Mar 2010

See all articles by Jens Wüstemann

Jens Wüstemann

University of Mannheim - Accounting and Taxation

Sonja Wustemann

Goethe University Frankfurt

Abstract

A cross-firm consistent application of accounting standards is sought in all major accounting regimes. Since many transactions and events are only vaguely or not explicitly addressed in the standards managers must often use judgment when applying accounting standards to particular transactions or events. This analysis concludes that a consistent application of accounting standards can only be ensured if the accounting standards themselves are internally consistent. By contrast, inconsistent standards - in the absence of clear guidance - permit managers to (more or less arbitrarily) choose between different accounting methods. Moreover, it is found that a consistent application presupposes the existence of specific guidance (‘rules’) in order to frame management's judgment. It is argued that the reliance on principles only - as requested by many in the accounting literature - fails to ensure a consistent application because it allows management to exert judgment differently in identical cases. The assessment includes arguments and propositions from the international discussion in the accounting literature and also refers to other related fields of research, such as legal theory.

Suggested Citation

Wüstemann, Jens and Wustemann, Sonja, Why Consistency of Accounting Standards Matters: A Contribution to the Rules-Versus-Principles Debate in Financial Reporting. Abacus, Vol. 46, No. 1, pp. 1-27, March 2010, Available at SSRN: https://ssrn.com/abstract=1560110 or http://dx.doi.org/10.1111/j.1467-6281.2010.00304.x

Jens Wüstemann

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Sonja Wustemann

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1
Abstract Views
2,893
PlumX Metrics