Behavioral evidence on the effects of principles- and rules-based standards. (Commentary).

INTRODUCTION

The Sarbanes-Oxley Act requires the SEC to study the feasibility of shifting to a more "principles-based" financial reporting system, and the FASB has proposed changes designed to create a more principles-based approach to standard setting (FASB 2002a). This commentary reviews research relevant to predicting how the behavior of various participants in the financial reporting process is affected by principles-based and rules-based standards.

The "Incremental" Perspective

Because U.S. accounting standards typically are written to operationalize the FASB's underlying conceptual framework, they are based on principles. The standards also provide guidance as to correct accounting or ...

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