1. Principles-Based vs.

Rules-Based Accounting
The fundamental advantage of principles-based accounting is that its broad
guidelines can be practical for a variety of circumstances. Precise requirements can
sometimes compel managers to manipulate the statements to fit what is compulsory.

On the other hand, when there are strict rules that need to be followed, like those in
the U.S. GAAP system, the possibility of lawsuits is diminished. Having a set of rules
can increase accuracy and reduce the ambiguity that can trigger aggressive
reporting decisions by management.

Compliance to GAAP helps to ensure transparency in the financial reporting process

by standardizing the various methods, terminology, definitions, and financial ratios.
For example, GAAP allows investors to compare the financial statements of two
companies by having standardized reporting methods. Companies must formulate
their balance sheet, income statement, and cash flow statement in the same
manner, so that they can be more easily evaluated.

If companies were able to report their financial numbers in any manner they chose,
investors would be open to risk. Without a rules-based accounting system,
companies could report only the numbers that made them appear financially
successful while avoiding reporting any negative news or losses.

Problems With Both Systems

The main problem overall is that there is no one set accounting method that has
been universally adopted. There are currently more than 144 jurisdictions that use
IFRS as their accounting standards, while the U.S. uses the rules-based GAAP
method. As a result, investments, acquisitions, and mergers may require a different
lens when comparing international competitors such as Exxon and BP, which use
different accounting methods.

Critics of principles-based accounting systems say they can give companies far too
much freedom and do not prescribe transparency. They believe because companies
do not have to follow specific rules that have been set out, their reporting may
provide an inaccurate picture of its financial health.
In the case of rules-based methods like GAAP, complex rules can cause
unnecessary complications in the preparation of financial statements. And having
strict rules means that accountants may try to make their companies more profitable
than they actually are because of the responsibility to their shareholders.

https://www.investopedia.com/ask/answers/06/rulesandpriciplesbasedaccounting.asp

2. Principles-Based vs. Rules-Based Accounting

A rules-based accounting framework provides specific rules that dictate how

economic activities should be accounted for. The main advantage of a rules-based
accounting framework is the consistency it provides since the same accounting
treatments must be applied to the same economic activities. The main disadvantage
is that it is not feasible to include rules for all possible economic activities in a given
framework. This can lead to the manipulation of the financial reporting when
accounting for economic activities for which there are no rules since the rules that
lead to the most favorable outcome may be deliberately selected. Accounting
frameworks that are developed and implemented by governments themselves are
typically rules-based accounting frameworks.

A principles-based accounting framework provides broad guidelines rather than

specific rules. The main advantage of broad guidelines is their relevance to a wider
scope of economic activities which reduces the possibility that economic activities
that must be accounted for will fall outside the scope of the framework. The main
disadvantage of broad guidelines is they may lead to different accounting treatments
being applied to similar economic activities since professional judgement must be
applied to determine the appropriate accounting treatment and since this
professional judgement may be applied inconsistently. An example of principles-
based accounting frameworks is the International Financial Reporting Standards
(IFRSs).
https://www.intosai-faas.org/rules-based-vs-principles-based.html