U.S. officials have tended to favor a rules-based approach, which establishes very specific accounting treatment guidelines on how to treat complicated financial contracts. International accounting rules embrace a more principles-based approach, outlining broader objectives and goals that must be achieved.
Opponents of the rules-based approach contend that it encourages accountants and corporate lawyers to find ways to skirt the rules, as was done by executives at Enron and WorldCom. U.S. accountants have been wary of the principles-based approach because it relies more on judgment and thus might expose them to legal liabilities.
The agreement between the boards is particularly important for European Union companies, which will be required to adopt IASB standards by 2005. As a result, the Securities and Exchange Commission is considering whether to allow foreign companies in American markets to follow IASB standards without having to reconcile the differences with U.S. rules, as is currently required.
(Source: The Washington Post, Thursday, September 19, 2002)