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Professional Standards Versus Rule-Based Standards

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Whether professional standards should be principles-based rather than rules-based is an unresolved issue. The general belief is that, by relying on bright-line and quantifiable evidence, rules-based standards often provides a vehicle for circumventing the intention of the standard (SEC, 2003). However, others have argued that, by relying on auditors' professional judgment, principles-based standards require auditors to be competent and independent. For example, Robert Herz, former chairman of the Financial Accounting Standards Board (FASB), has cited the recent events in the U.S. as evidence that preparers and auditors cannot be trusted to properly exercise professional judgment with objectivity and courage" (Herz, 2003). Furthermore, principles-based …show more content…

The accounting profession has been and will continue to be on the front lines of the challenge to provide investors, managers, directors, regulators, and others with up-to-date, reliable, and comparable financial reporting information, while the demands placed on the profession are. We expect financial statement preparers to apply judgment in the preparation and auditors to apply judgment in the audit of financial statements in a professional manner. This involves applying relevant training, knowledge, and experience within the context provided by relevant professional and technical standards, as applicable, in making informed decisions about courses of action that are appropriate in the circumstances. Confidence in the profession and in both rules- based and principles-based standards require demonstrating collectively that, as professionals, auditors must be capable of making sound judgments, because it is vital for the future of the …show more content…

Vice versa, how? And how does the difference of the two affect the financial statement audit

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