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A Standard Setting Perspective on Current Issues Facing the Accounting Profession - page 25 / 29

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Principles-based standards

Viewed by some as a constructive response to financial reporting failures

Claim:  U.S. GAAP has a “rules-based” or “check-box” mentality that encourages transaction structuring to subvert the intent of the standards

Example:  leasing

Empirical issue:  Prevalence of various forms of earnings management and/or financial reporting fraud.  To what extent do reporting failures arise from:

Transaction structuring

Idiosyncratic judgments

Fictitious transactions (fraud)

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