Accounting Theory

Accounting Theory Construction The function to study bill theories is to classify them according to the trusts they rely on, how they were formulated, and their get ones to explaining and predicting actual events. There ar most classification which atomic number 18 pragmatic, syntactical, semantic, normative, positive, and naturalistic surfacees. matter-of-fact approaches are based on detect the behavior of accountants or those who use the information generated by accountant. syntactic approaches rely on logical argument, based on a set of expound. Semantic approaches worry how theories correspond to real-world events.Normative theories rely on both semantic and syntactic approaches. Positive approaches test hypotheses against actual event . Positive approaches test hypotheses against actual and the last is realistic approaches consider individual cases and do not try to generalise. hardheaded THEORIES Descriptive Pragmatic Approach Descriptive pragmatic approach based on unremitting observation of the behavior of accountants, a surmisal can be developed from observations of how accountants act in certain situations. The possibleness can be tested by observing whether accountant do act in the charge the theory suggest.This approach is probably the oldest and most univers ally used method of explanation theory construction. Criticisms of descriptive pragmatic approach * does not consider the theatrical role of an accountants action * does not provide for accountancy practices to be challenged * focuses on accountants conduct not on measuring the attributes of the firm Psychological Pragmatic Approach Differetnt with Descriptive pragmatic approach, this approach require theorist to observe users responses to the accountants output ( exfinancial report).There are also near problem with this mental approach that are * some users may react in an illogical manner * some users might have a preconditioned response * some users may not react when they should SYNTATIC AND SEMANTIC THEORIES Semantic inputs of the system are the transactions and exchanges enter in the vouchers, journals, and ledgers of the business. These are then manipulated on basis of the premises and trusts of historical make up accounting. Some accounting theorists are critical, they argue that the theory has semantic contentedness only on the basis of its inputs.There is no independent verifiable operation to verify the calculated outputs for posers, profit or total asset. Historical cost accounting has also been criticised on the basis of its syntactic element, for example with respect to the practice of summing several different money amounts assigned to specific assets In abnegation of the historical cost system, accountants argue that there is no requisite that accounting outputs should have any semantic content or be subject to deceit rules.NORMATIVE THEORIES The 1950s and 1960s saw what has been described as the easy age of normative acco unting investigate. Accounting researches become more concerned with policy testimonial and with what should be done, rather than with analysing and explaining the currently accepted practice. Normative theories change state either on deriving the true income for an accounting period. True income true income theorists concentrated on deriving a single measure for assets and a singular profit figure.Decision usefulness the decision usefulness approach assumes that the basic objective of accounting is to attending the decision making process of certain users of accounting reports by providing useful, or relevant, accounting data. The normative theories of the 1950s and 1960s began with a statement of the domain (scope) and objectives of accounting, the assumptions key the system and definitions of all the key concepts. POSITIVE THEORIES During the 1970s, accounting theory saw a move back to empirical methodology, which is often referred to as positive methodology.Positivism or empiricism means testing or relating accounting hypotheses or theories back to experiences or facts of the real world. The main different between normative and positive theories is that normative theories are prescriptive, whereas positive theories are descriptive, explanatory or predictive. variant PERSPECTIVES Focused on what may be considered to be a highly structured approach to theory formulation the scientific approach. This approach has an inherent assumption that the world to be researched is an objectives reality capable of examination in terms of large outdo or average statistics.This type of research is carried out by incremental hypotheses which are then combined to provide greater understanding, or better predictions of accounting. The implied assumption is that a good theory holds under circumstances that are constant across firms, industries and time. The criticism of the scientific method are the large-scale statistical research tends to lump everything together and it is conducted in environments that are often outdoor(a) from the world of or the concerns of accountants. SCIENTIFIC APPROACH APPLIED TO ACCOUNTINGA great deal of misunderstanding exists rough the get to apply a scientific approach to accounting. The attempt is to make scientists out of accounting practitioners. Accountants who believe in a scientific approach loss empirical evidence and logical explanation to support accounting practices so that practitioners can recommend the most appropriate methods for given situation based on this evidence. Another common misunderstanding about the application of the scientific view in accounting is that absolute truth is desired, which of course is not possible.ISSUES FOR AUDITING THEORY manifestation Auditing is a verification process that is applied to the accounting inputs and processes. meeter provide an opinion on whether the financial statements are in accordance with the applicable describe framework, and also provide on wh ether the statements present fairly, in all material respects, or give a true and fair view. The normative era of accounting theory and research also coincided with a normative approach to auditing theory. The positive ere of accounting has led to a positive approach to auditing theoryAccounting TheoryAccounting Theory Construction The function to study accounting theories is to classify them according to the assumptions they rely on, how they were formulated, and their approaches to explaining and predicting actual events. There are some classification which are pragmatic, syntactic, semantic, normative, positive, and naturalistic approaches. Pragmatic approaches are based on observing the behavior of accountants or those who use the information generated by accountant. Syntactic approaches rely on logical argument, based on a set of premises. Semantic approaches concern how theories correspond to real-world events.Normative theories rely on both semantic and syntactic approaches. Positive approaches test hypotheses against actual event . Positive approaches test hypotheses against actual and the last is Naturalistic approaches consider individual cases and do not try to generalise. PRAGMATIC THEORIES Descriptive Pragmatic Approach Descriptive pragmatic approach based on continual observation of the behavior of accountants, a theory can be developed from observations of how accountants act in certain situations. The theory can be tested by observing whether accountant do act in the way the theory suggest.This approach is probably the oldest and most universally used method of accounting theory construction. Criticisms of descriptive pragmatic approach * does not consider the quality of an accountants action * does not provide for accounting practices to be challenged * focuses on accountants behaviour not on measuring the attributes of the firm Psychological Pragmatic Approach Differetnt with Descriptive pragmatic approach, this approach require theorist to o bserve users responses to the accountants output ( exfinancial report).There are also some problem with this psychological approach that are * some users may react in an illogical manner * some users might have a preconditioned response * some users may not react when they should SYNTATIC AND SEMANTIC THEORIES Semantic inputs of the system are the transactions and exchanges recorded in the vouchers, journals, and ledgers of the business. These are then manipulated on basis of the premises and assumptions of historical cost accounting. Some accounting theorists are critical, they argue that the theory has semantic content only on the basis of its inputs.There is no independent empirical operation to verify the calculated outputs for examples, profit or total asset. Historical cost accounting has also been criticised on the basis of its syntactic element, for example with respect to the practice of summing several different money amounts assigned to specific assets In defence of the historical cost system, accountants argue that there is no requirement that accounting outputs should have any semantic content or be subject to falsification rules.NORMATIVE THEORIES The 1950s and 1960s saw what has been described as the golden age of normative accounting research. Accounting researches become more concerned with policy recommendation and with what should be done, rather than with analysing and explaining the currently accepted practice. Normative theories concentrated either on deriving the true income for an accounting period. True income true income theorists concentrated on deriving a single measure for assets and a unique profit figure.Decision usefulness the decision usefulness approach assumes that the basic objective of accounting is to aid the decision making process of certain users of accounting reports by providing useful, or relevant, accounting data. The normative theories of the 1950s and 1960s began with a statement of the domain (scope) and objec tives of accounting, the assumptions underlying the system and definitions of all the key concepts. POSITIVE THEORIES During the 1970s, accounting theory saw a move back to empirical methodology, which is often referred to as positive methodology.Positivism or empiricism means testing or relating accounting hypotheses or theories back to experiences or facts of the real world. The main different between normative and positive theories is that normative theories are prescriptive, whereas positive theories are descriptive, explanatory or predictive. DIFFERENT PERSPECTIVES Focused on what may be considered to be a highly structured approach to theory formulation the scientific approach. This approach has an inherent assumption that the world to be researched is an objectives reality capable of examination in terms of large scale or average statistics.This type of research is carried out by incremental hypotheses which are then combined to provide greater understanding, or better predi ctions of accounting. The implied assumption is that a good theory holds under circumstances that are constant across firms, industries and time. The criticism of the scientific method are the large-scale statistical research tends to lump everything together and it is conducted in environments that are often remote from the world of or the concerns of accountants. SCIENTIFIC APPROACH APPLIED TO ACCOUNTINGA great deal of misunderstanding exists about the attempt to apply a scientific approach to accounting. The attempt is to make scientists out of accounting practitioners. Accountants who believe in a scientific approach want empirical evidence and logical explanation to support accounting practices so that practitioners can recommend the most appropriate methods for given situation based on this evidence. Another common misunderstanding about the application of the scientific view in accounting is that absolute truth is desired, which of course is not possible.ISSUES FOR AUDITING T HEORY CONSTRUCTION Auditing is a verification process that is applied to the accounting inputs and processes. Auditor provide an opinion on whether the financial statements are in accordance with the applicable reporting framework, and also provide on whether the statements present fairly, in all material respects, or give a true and fair view. The normative era of accounting theory and research also coincided with a normative approach to auditing theory. The positive ere of accounting has led to a positive approach to auditing theory