The setting of accounting standards in the United States of America follows a thorough procedure where a new issue is selected and a task force is appointed to carry out research related to the issue and the task force issues a memorandum which is then presented in front of the public and the responses from the public are analyzed and amendments are made to the memorandum which is again presented to the public in the form of a draft statement and any responses to this draft are analyzed and changes are made to this draft and final voting takes place and if the draft standard is successful in voting the final statement of the standard is issued.
The Financial Accounting Standards Board follows a rule based approach to setting standards rather than using a principle based approach. The practice around the world for setting accounting standards is based on a principle approach while regulatory bodies in the United States of America prefer a rule based approach (FASB 2004). The rule based approach to standard setting focuses on strict rules to be followed while preparing financial statements.
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