The distinction between rules‐based and principles‐based standards is not well defined and is subject to a variety of interpretations (SEC, 2003, p. 5). Yet there is a commonly held view that the FASB's standards are rules‐based and the IASB's standards are principles‐based. This article identifies the basis of this distinction. For research and development, the article compares the FASB standard with two principles‐based standards. For each standard we identify and classify rules and judgments, and observe the level of justifications for the rules and assistance to support the judgments. The three standards have rules, are based on principles, and require the exercise of professional judgment; the less conservative standard requires more judgments and, unexpectedly, more rules. The results suggest that the rules‐based versus principles‐based distinction is not meaningful, except in relative terms. We conclude that a relatively more principles‐based standards regime requires professional judgment at both the transaction level (substance over form) and at the financial statement level (‘true and fair view’ override). Furthermore, it is suggested that any FASB and IASB convergence will require agreement on the weightings given to the qualitative characteristics.