Do principles-based accounting standards lead to biased financial reporting? An Australian experiment

Author: Psaros, Jim

Source: Accounting and Finance, Volume 47, Number 3, September 2007 , pp. 527-550(24)

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Abstract:

International accounting standards are deliberately designed to be principles-based (i.e. `substance over form'). With Australia's recent adoption of international accounting standards, a relevant question is, do principles-based accounting standards lead to biased financial reporting? The present paper describes a study that analysed the consolidation judgements of senior accounting officials from Australian listed companies. Participants made consolidation judgements based on AASB 1024 Consolidated Accounts. Although AASB 1024 is not identical to IAS 27 Consolidated and Separate Financial Statements, there are many similarities and both follow a principles-based approach. In aggregate, the present study finds that principles-based accounting standards do not necessarily lead to biased financial reporting.

Keywords: Accounts; Consolidation; Judgement; Principles-based; M40; M41

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1467-629X.2007.00212.x

Affiliations: 1: School of Business and Management, Faculty of Business and Law, University of Newcastle, Callaghan, 2308, Australia

Publication date: 2007-09-01