Are We Moving Towards Principles-Based Accounting Standards : Evidence from Four East Asian Countries

The objective of this study is to examine the level of rules-based characteristics in the national accounting standards in the periods prior to and after the IFRS convergence and determine whether national accounting standards are moving towards relatively more principles-based following the IFRS convergence. Since IFRS is directed towards a global principles-based standard, we predict that national accounting standards of adopting countries are also moving towards relatively more principles-based standards. We test this prediction by performing content analysis on national accounting standards of Indonesia, Malaysia, Hong Kong, and Singapore and examine the level of the following rules-based characteristics contained in each standard: numerical threshold, scope exception, words, and interpretation. This study finds that the number of exceptions, words, and interpretation of sample countries’ standards increases significantly while the number of numerical threshold decreases significantly during the sample period. Thus, this study concludes that national standards have been able to minimize the use of numerical threshold as criteria for selecting suitable accounting treatment. National standards, on the other hand, rely more and more on explanations, illustrative examples, and application/ implementation guidance to help preparers and auditors in determining the appropriate method for recognition, measurement, and presentation in the financial statements. This paper informs international and national standard setters about the shift in the component of rules-based characteristics in the national accounting standards and its potential impact on preparers, auditors as well as the enforcement agency