Wednesday, 29 October 2008

Principles vs Rules - Part 2

It's quite sad, but since I have begin my training to be an accountant I have been noticing how systems are regulated. Also the power regulators require in order to effectively regulate.

The most effective regulatory framework is one which empowers the inspectors, at the expense of the inspectee. This is why a rules based approach will always be inferior to a principles approach.

If a company meets the rules laid down, then the regulator has no power to pursue them, but if principles are used the company must ensure their interpretation matches that of the regulatory.

In short rules empower the inspectee, principles the inspector.

I wonder which system Gordon Brown will choose at the end of the crisis.

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