The most insightful question was, “How can more principles-based standards work in the U.S….?” His answer was, “No one wants to exercise judgment…it is less predictable how the courts would react to the judgment calls made by preparers or auditors….”
So my second question is this: When did “rules-based accounting” replace the preparer’s and the auditor’s judgment? What standard was that? Who decided this? Have courts and regulators thoroughly and completely discredited our judgment? If so, then why do states license us?
By way of reference, consider the article, “ It’s Time to Simplify Accounting Standards,” (March 99, page 65) by Dennis Beresford. A reprint of that may be timely. Today, international standards, a “principles-based” approach, are on the verge of overwhelming our arcane, brittle and increasingly obsolete U.S. GAAP.
I applaud the JofA for its interview with Pozen. Please continue to actively cover the continuing demise and collapse of “rules-based” accounting.
Samuel H. Coppock, CPA
Editors’ note: In general, bylines in the JofA are reserved for authors. In the case of the interview with Mr. Pozen, the JofA solicited potential questions from a variety of technical experts. Several members of the JofA staff worked together to edit the questions and coordinate various elements of the interview.
Mr. Beresford’s article is available here.