Difference between rules-based and principles-based accounting standards

(A) Rules-based accounting standard Rule-based systems are fairly simplistic, consisting of little more than a set of if-then statements, but provide the basis for so-called "expert systems" which are widely used in many fields. The concept of an expert system is this: the knowledge of an expert is encoded into the rule set. When exposed to the same data, the expert system AI will perform in a similar manner to the expert. Rule-based systems are …

…bright-line rules. (2)<Tab/>Principles-based accounting implies that the information should be relevant, reliable, and comparable across reporting periods and entities. If the only requirements were that information be relevant and reliable, entities would adopt reporting methods to best reflect the economic realities for their particular entity. But this would make comparison between companies and across reporting periods virtually impossible for investors.<Tab/><Tab/>