Examples Of Rules Based Accounting

WorldCom is another example to show how rules based accounting can be manipulated and transactions structered in ways that concealed unfavourable information. Not only does WorldCom show how rules based accounting can be the reason for the distruction of a corporation but is an example of how it may inevitably encourage corporate crime. In 2001, the companies former financial officer, Scott Sullivan; and the former controller, David Meyers were charged with securities fraud conspiracy and other charges, they face 65 years in prison. These men saw an opportunity to manipulate the rules, one that would not necessary have availed itself if principle based accounting standards had been implemented. WorldCom inflated assets by as much as $11 billion,

Valeant pharmaceuticals international inc. shares declined, falling more than 30 percent after a stock commentary site run by a short seller accused the company of an Enron like strategy of recording fake sales by using phony customers. It has been reported that Valeant is using a speciality pharmacy called Philidor RX services to store inventory and record those transactions as sales. It’s all taken a heavy toll on Valeant shares, which were up 83 percent for the year in august and are now down 22 percent for 2015. Although it has not yet been confirmed the speculation associated with the manipulation of the rule based accounting system has already started to cause unrest in a market, only time will tell if the allegations are true and if they will mirror the collapse of

It is our view; therefore, that principles based accounting is much more affective and reliable as it is based on what is morally and ethically right. Under principles based accounting, the standards would apply to a broader variety of issues then current and would leave room for fewer exceptions; however, they would still be developed from the conceptual framework, which is the underlying body of accounting and reporting. Exception, where a company deviates from acceptable practices,in rules based accounting usually come from pressure from lobbying by bigger companies with more influence in order to benefit them and can sometimes lead to creative accounting or the manipulation of rules. An important aspect of the principles based accounting is that it should be at least lightly based on the rules but done so in a way that it leaves less space for manipulation. One way of doing this is through the use of interpretation and guidance. There have been obvious moves towards the desire of larger firms to move to the principles based accounting methods. An example of this would be that ‘Sam DiPiazza , CEO of PricewaterhouseCoopers, and Ed Nusbaum, CEO of Grant Thornton have both