Rules- or Principles-based Accounting Frameworks? A text analysis of the K2 and K3 frameworks
Abstract: Background and research problem: Accounting quality and accounting scandals may bothbe affected by the formulation of standards. Recently, the international debate regardingclassification of frameworks has received major focus in Sweden as a result of theimplementation of K2 and K3. BFN refers to K2 as being a rules-based framework,meanwhile K3 is stated to be principles-based. Several researchers have criticized BFN’sstatement about K2 being rules-based and K3 being principles-based. The debate requiresclear definitions of rules- and principles-based characteristics. Therefore, seeking to classifyaccounting frameworks may increase the understanding of the most suitable adoption offrameworks.Purpose: The primary purpose of this study is to investigate the rules-and principles-basedcharacteristics within K2 and K3 in order to enable classification. Also, the study contributesby the development of an index model that can be used in the classification of accountingframeworks.Index model: Seven parameters are identified from literature and used as a tool to collectdata in terms of indications of rules- and principles-based characteristics. The parametersserves as a base for the construction of an index used to define the frameworks as rules- orprinciples-based.Methodology/method: The study includes elements of both quantitative and qualitativemethods, combining the development of a numerical index with a text analysis of theframeworks in order to attain increased understanding. The empirical data is gathered withrespect to literature and thereafter analyzed in order to receive the results.Findings and conclusion: The study shows contradictory results in terms of providingdifferent results depending on the investigated parameter. The fact that different results aregiven with respect to different parameters indicates that K2 is not being entirely rules-basedand K3 not entirely principles-based. Therefore, the results of this study show that theclassification of K2 and K3 as either rules- or principles-based is complex and not asstraightforward as stated by BFN.Future research: Suggestions for future research involves further investigation of definingaccounting frameworks as rules- or principles-based by using the developed index model. Wesuggest future studies to include investigation of other accounting frameworks such as IFRSand US GAAP.
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