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    Cahyani Prastuti
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    This document discusses normative and positive theories in accounting. It provides examples of normative statements, which state how things should be, versus positive statements, which describe how things are. Normative theories in accounting are prescriptive and based on reasoning and judgment, while positive theories are descriptive and empirical. Most early accounting research was normative, but starting in the 1960s, some research became positive, empirically testing theories. This course will focus on normative accounting theory, as accounting is primarily about designing information systems rather than scientific discovery.

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    This document discusses normative and positive theories in accounting. It provides examples of normative statements, which state how things should be, versus positive statements, which describe how things are. Normative theories in accounting are prescriptive and based on reasoning and judgment, while positive theories are descriptive and empirical. Most early accounting research was normative, but starting in the 1960s, some research became positive, empirically testing theories. This course will focus on normative accounting theory, as accounting is primarily about designing information systems rather than scientific discovery.

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    442 views10 pages

    Positive and Normative Theories

    Uploaded by

    Cahyani Prastuti
    This document discusses normative and positive theories in accounting. It provides examples of normative statements, which state how things should be, versus positive statements, which describe how things are. Normative theories in accounting are prescriptive and based on reasoning and judgment, while positive theories are descriptive and empirical. Most early accounting research was normative, but starting in the 1960s, some research became positive, empirically testing theories. This course will focus on normative accounting theory, as accounting is primarily about designing information systems rather than scientific discovery.

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    of 10

    NORMATIVE AND

    POSITIVE THEORIES
    Accounting Theory Lecture 1b
    December 17, 2016
    An excerpt from the Statement of Financial Position of PT Indofood Sukses
    Makmur Tbk as of December 31, 2015, Note 2 page 49.

    Q: Why did the company


    choose the lower
    amount of cost and net
    realizable value to
    report its inventories?
    A: Because PSAK 14
    requires it to do so.
    Q: Why does PSAK 14
    prescribes companies to
    use the lower figures?
    A: Because accounting
    uses the concept of
    prudence.
    Please answer ...
    Does the explanation for the accounting
    choice of PT Indofood Sukses Makmur Tbk
    regarding its inventories constitute a theory?
    What concept and proposition can you find in
    the explanation?
    Welcome to Normative Theory
    Fact: Companies Question: Does the
    report their explanation
    inventories at the constitute a theory?
    lower of cost or net Answer: Yes. Its a
    realizable value. normative theory.
    Explanation:
    Accounting Please note that a normative
    implement the theory does not qualify the
    conservatism definition of theory in its
    scientific sense. It is, after all,
    principle in a norm.
    measuring assets.
    POSITIVE vs. NORMATIVE THEORY
    [from Suwardjono]

    INDICATOR POSITIVE NORMATIVE

    Form of Statement IS SHOULD

    Nature of Statement DESCRIPTIVE PRESCRIPTIVE

    Domain FACT VALUE

    Base for Conclusion OBJECTIVE-EMPIRICAL SUBJECTIVE - REASONING

    Criteria for Acceptance TRUE-FALSE GOOD-BAD

    Method of Testing SCIENTIFIC JUDGMENT


    POSITIVE vs. NORMATIVE STATEMENTS
    POSITIVE NORMATIVE
    Investors based their decision The objective of accounting is
    making on accounting to provide information that is
    information. useful in decision making
    process.
    Managers choose accounting Accounting choices should
    methods that are most generate the most
    beneficial for them. representationally faithful
    information.
    Note: Both are the domains of accounting theory and
    research today.
    Definition from Hendriksen (1988)
    Accounting theory is a logical reasoning in the
    form of a set of broad principles that (1) provide
    a general frame of reference by which accounting
    practice can be evaluated and (2) guide the
    development of new practices and procedures.
    Hence, accounting theory is a normative theory.
    Question: Does it mean that accounting is not
    scientific?
    From Normative to Positive Theories

    up to the 1960s from the late 1960s


    Practically all accounting In 1968, Ball and Brown
    researches are normative in tested empirically whether
    nature. accounting information, i.e.
    Example: Researches geared net income, is used by stock
    toward defining and market investors.
    reporting the TRUE income In 1986, Watts and
    of companies. Zimmerman published the
    book Positive Accounting
    Theory.
    FOCUS of the COURSE
    Eventhough most of accounting researches
    conducted today, probably including your
    future thesis, are positive in nature, the focus
    of this course is in the normative theory of
    accounting.
    Accounting, after all, is more an information
    technology than a scientific endeavor.
    December 18, 2016

    NEXT:
    THE CONCEPTUAL FRAMEWORK

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