PRINCIPLES-BASED ACCOUNTING Definition

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PRINCIPLES-BASED ACCOUNTING provides for few exact rules and little implementation guidance. Instead, general principles are put forward and companies must ensure that their financial statements fairly and accurately represent these principles. Proponents argue that this type of system does not allow for less than ethical financial engineering, where complex transactions are undertaken in order to get around following specific rules-based accounting standards. Critics believe a principles-based system allows too much leeway for companies, because they generally do not have to follow specific rules, only wide-arching principles. See also RULES-BASED ACCOUNTING.

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MONITORING is the evaluation of the firm’s system of quality control to provide reasonable assurance that it is designed appropriately and operating effectively.

ECONOMIC VALUE (EV) is the value of an asset deriving from its ability to generate income.

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