SEC opt for 'principle-based' accounting
A study by the SEC has recommended that a principles-based approach should be adopted when dealing with accounting standards. The study, prepared by the office of the chief accountant, relates to the Sarbanes-Oxley Act of 2002.
The principles based approach means the accounting standard must have a number of facets. It must state the accounting objective of the standard and must provide enough detail for the standard to be consistently applied with as little exception as possible.
"I want to commend the staffs of the office of the chief accountant and the office of economic analysis for their thoughtful study, which endorses an approach to setting accounting standards that should result in investors receiving more transparent information about a company's financial results and position," says William Donaldson, SEC chairman.
The study underlines the belief that management and auditors must be responsible for any financial reporting procedures within the company, and that a consistent framework must be applied.