Concerning the “principles-based = Canada = good” versus “rules-based = United States = bad” dichotomy, in relation to financial accounting standards, which may well be mythical, it seems that managerial attitudes remain the missing trigger. Whether any accounting principle, like any law, is rules-based or principles-based is a function of the belief by legislators that a proscription, as worded, will achieve the desired social result. If enough people try to find “loopholes” or try to construct their affairs to follow the letter, rather than the spirit of a regulation, then greater regulatory precision is required. The concern then becomes the identification of those on the borderline, rather than assuming that the regulatory spirit is shared. One can’t fault auditors for expressing unqualified audit opinions on aggressive, but nonetheless permitted accounting treatments. It is for standard-setters to identify the sources, nature and extent of such level of aggression and to determine, proactively rather than reactively, whether more explicit regulatory constraints are required.
Identification of the bad actors, and reining them in.
Lasso and corral the outliers.
Essence of regulation.