In junior high school, I had a certain fascination for figure/ground images - those illustrations that, depending on how they were perceived, were either two profiles facing each other or the outline of a lampshade. When I asked the school psychologist the purpose of the drawings, she told me that they gauged our ability to discern images or separate them amidst a contrasted background.Despite understanding about every third word of her professional explanation, I was able to figure out in layman's terms that some people see things one way, while others see them another.

Over the past several years, I've often felt that way about the rules-based vs. principles-based debate over accounting standards. I've attended conferences, listened in to Webcasts, and written series of articles and several columns on the debate, and I'm still unsure of whether I see the people or the 1950s-style lamp.

Last month, the rules vs. principles discussion leapfrogged into the headlines when the Securities and Exchange Commission announced that it would issue a proposal later in the summer to allow foreign private issuers a choice between the principles-based International Financial Reporting Standards and U.S. GAAP, which are, according to users, decidedly more rules-based. If passed, that would eliminate the reconciliation requirement for overseas filers using IFRS or other standards, that they report in GAAP beginning in 2009.

In April, I attended a conference on contemporary accounting issues, and listened to an hour-long discourse on international accounting hurdles, as well as some projections on the timetable for the inevitable convergence of standards.

Apparently, the six-member panel, many of whom held top-level financial and accounting posts, became ensnared, if only temporarily, on the subject of rules vs. principles. Several opined that in many cases of financial reporting, it was hard to tell where a rule ended and a principle began. Similar to the hazy differences in the figure/ground model.

Roughly one week later, President Bush and German Chancellor Angela Merkel sealed an agreement that would help clear a path toward a unified set of accounting standards by 2009. The pact would establish something called a "Transatlantic Economic Council," whose purpose is to help lower regulatory barriers between the U.S. and the European Union. Surprisingly, neither the president nor his Teutonic counterpart ever once got into a diplomatic imbroglio over rules vs. principles.

At this point, I can predict with a reasonable amount of confidence that the SEC will go ahead with its proposal to allow foreign filers a fielder's choice, so to speak, with regard to filing, a critical step if the U.S and the rest of the word are going to achieve standards convergence.

I'm still not certain I can accurately explain the difference between rules and principles, but give me any figure/ground illustration and I'll tell the lamp from the faces.

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