Slide AKT 405 Teori Akuntansi 1 Godfrey

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GODFREY HODGSON HOLMES TARCA

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Overview of Accounting Theory

What is a theory?

Hendriksen’s definition:

…the coherent set of hypothetical, conceptual and

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What is an accounting theory?

Hendriksen’s definition:

…logical reasoning in the form of a set of broad

principles that

• _{provide a general framework of reference by}

which accounting practice can be evaluated and

• _{guide the development of new practices and}

procedures.

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Overview of Accounting Theory

• _{Whether a theory is accepted depends on}

how:

– _{well it explains and predicts reality}

– _{well it is constructed both theoretically and}

empirically

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Overview of Accounting Theory

• _{Accounting theory is a modern concept}

compared to mathematics or physics

• _{Even Pacioli’s treatise on double-entry}

accounting focused on documenting

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Overview of Accounting Theory

The development of accounting

theory has been mostly unstructured

Chambers:

Accounting has frequently been described as a body of practices which have been developed in response to practical needs rather than by

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Overview of Accounting Theory

• _{Was developed to resolve problems as they}

arose – reactive

• _{Ad hoc approach}

• _{Led to inconsistencies in practice}

– _{e.g. different depreciation methods}

• _{Accounting standard setting}

– _{Conceptual framework projects have not resolved}

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Pre-theory (1400s – 1800)

Goldberg:

No theory of accounting was devised from the time of Pacioli down to the opening of the nineteenth

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Pragmatic accounting

(1800– 1955)

• _{The ‘general scientific period’}

– _{based on empirical observation of practice}

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Normative accounting

(1956-1970)

• _{Sought to establish ‘norms’ for the best}

accounting practice

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Normative accounting

(1956-1970)

• _{Degenerated into battles between competing}

viewpoints

• _{Two groups dominated:}

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Normative accounting

(1956-1970)

• _{Factors prompting the demise of the}

normative period include:

– _{the unlikelihood of one particular normative}

theory being generally accepted

– _{the application of financial economic principles} – _{the availability of empirical data and new testing}

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Normative accounting

(1956-1970)

• _{The major criticisms of normative theories}

were:

– _{they do not necessarily involve empirical}

hypothesis testing

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Positive accounting

(1950 to the

present day)

• _{A shift to a new form of empiricism called}

‘positive theory’

• _{Had its origins in the ‘general scientific period’} • _{It seeks to explain the accounting practices}

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Positive accounting (1950 to the

present day)

• _{Its objective is to explain and predict}

accounting practice

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Positive accounting (1950 to the

present day)

• _{It helps predict the reactions of ‘players’, such}

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Positive accounting (1950 to the

present day)

• _{Major deficiencies are:}

– _{‘wealth maximisation’ has become the answer to}

explain all accounting practices and reported information

– _{it relies excessively on agency theory and dubious}

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Positive accounting

(1950 to the

present day)

• _{Behavioural research:}

– _{concerned with the sociological implications of}

accounting numbers and the associated actions of ‘key players’

– _{emerged in the 1950s}

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Recent developments

• _{Academic and professional developments in}

accounting theory have tended to take different approaches

• _{Academic research focuses on capital markets,}

agency theory and behavioural aspects

• _{The profession has sought a more normative}

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Recent developments

• _{Conceptual framework – resurrected in 1980s}

– _{states the nature and purpose of financial}

reporting

– _{Establishes criteria for deciding between}

alternative accounting practices

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Recent developments

• _{Conceptual framework – Recent Developments}

– _{Joint project between IASB & FASB}

– _{International harmonisation of accounting}

practices through a single consistent set of

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Recent developments

• _{The conceptual framework underpinning the}

IFRS favours a move toward

– _{accounting practices that provide information for}

enhancing decision making by investors and others

– _{recognising all gains and losses in the accounting}

periods in which they occur

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Content outline

• _{Part 1: Accounting theory (chapters 1 – 3)} • _{Part 2: Theory contributing to practice}

(chapters 4 – 10)

• _{Part 3: Accounting and research (chapters 11 –}

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Summary

• _{Accounting theory}

• _{Major periods of accounting theory}

development

• _{Normative accounting} • _{Positive accounting}

• _{Conceptual framework}

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Key terms and concepts

• _Theory

• _{Accounting theory} • _{Normative theory} • _{Positive theory}

• _{Behavioural theory}

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