A disadvantage of rules-based standards for users of the standards is:

Question

Quizplus · Accepted Answer

Rules-based standards can be rigid and may not fully capture the complexity of transactions, leading to the possibility of structuring transactions to work around the rules instead of reflecting the true economic substance of the transaction. This can ultimately undermine the reliability and relevance of financial statements. While rules-based standards may reduce opportunities for earnings management, they may also limit flexibility and hinder innovation in financial reporting. Increased comparability of accounting information is actually a benefit of rules-based standards, not a disadvantage.

A Disadvantage of Rules-Based Standards for Users of the Standards