Professional Documents
Culture Documents
Accounting theories
Accounting is a human activity (if no humans then
no accounting)
It would seem illogical to study financial
accounting
(for
example,
the
accounting
standards) without also studying accounting theory
Theories of accounting consider:
why particular accounting rules are mandated by
regulators
peoples behaviour with respect to accounting
information
peoples needs for accounting information
why people within organisations elect to supply
particular information
Accounting
are
very
powerful
members
of
society!
continued
theories of accounting
students to various issues, including:
exposes
it is difficult to:
evaluate the suitability of current accounting
practices
develop improved accounting practices where
current practices are unsuitable for changed
business circumstances
defend the reputation of accounting when
accounting practices are blamed for causing
companies to fail (as has been the case with the
global financial crisis)
market hypothesis
Methods of Reasoning
Two methods of reasoning
Induction
Deduction
Nature of Theory
The objective of accounting theory is to
Nature
There is no single comprehensive accounting theory,
but there are many middle range theories. This is
due to the differences in perception of user and
environment.
Given the complex nature of accounting phenomena
and issues, both the types of methodology will
continue to be adopted for the formulation of
accounting theory:
The descriptive methodology will attempt to justify
some of the accounting practices deemed useful
The normative methodology will attempt to justify
some of the accounting practices that ought to be
adopted.
Classifications
Other ways of classifying theories can be:
a. Inductive vs deductive
b. Normative vs positive
Hendriksen classify theories according to
prediction levels:
c. Structural or syntactical
d. Interpretational or semantical
e. Behavioural or pragmatic
Accounting Environment
As time passes, the
Economic
Social
Legal
Political
Other
Environments are changing
Accounting in a changing environment