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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ACID-TEST RATIO is an analysis method used to measure the liquidity of a business by dividing total liquid assets by current liabilities.

GENERALIZED AUDIT SOFTWARE is packaged computer programs used on a variety of computers during audit field work to read computer files, select information, perform calculations, create data files, and print reports in a format specified by the auditor.

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