Definition Of Financial Reporting System

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Emmanuel Shipstone ACCT Reading 1 The 2003 paper by Schipper discusses the move in the accounting community to abandon the U.S. “rules based” accounting system in favor of a principles based system. Karen Schipper is an accounting professional that is a member of the FASB. The principles based system allows for the appropriate exercise of professional judgment. The current system is “rules based” and is based on the stringent guidelines that encourage decisions be made that follow a decision tree and place a “check mark” in a box. Under current FASB standards, the definitions of financial statement concepts NO 6. This definition is like a standard because it is listing the criteria of the obvious and professionally accepted of the …show more content…

Other issues encountered by standard setters are how should accounting terms be defined? How much detail should be included? How much should be given to apply the standard i.e. numerical illustrations. In regards to business combinations, a key question is how to treat the difference between the purchase price and the book value of the acquired entity. The comparability principles states that unless there are multiple economically distinct types of business combinations there should be only one accounting treatment. That is if pooling combinations apply, and if purchase combinations are applied it must be demonstrated that the same accounting treatment will not e applied to both. Relevance provides the feedback in evaluating the successes of the business combination. The fair value method is relevant to this case. Since the purchase method of accounting is established. The method must be devised in regard to the acquisition treatment of goodwill which is the difference between the purchase price and consideration of identifiable net assets. According to FASB concepts #6 Goodwill meets the definition of an asset. Also SFAS Nos. 111 and 142 outline that goodwill should not be amortized and needs to be tested for impairment. SFAT 111 and 142 are principles based because they require a single accounting treatment for all types of

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