TP 1

FINANCIAL ACCOUNTING THEORY

2022/2023

INTRODUCTION:
ACCOUNTING THEORY CONSTRUCTION

Subject Learning Outcome:

 Explain the meaning of accounting theory and how accounting theories are
constructed

Financial Accounting Theory | Soemarso SR

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ACCOUNTING

BUSINESS

MARKET ECONOMY

 ACCOUNTING IS LANGUAGE OF BUSINESS

 BUSINESS IS A PROFIT ORIENTED ACTIVITIES IN A MARKET ECONOMY
 MARKET ECONOMY IS AN SYSTEM OF ECONOMY ADOPTED BY A
COUNTRY

Financial Accounting Theory | Soemarso SR

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MARKET ECONOMY

 RECOGNITION OF PRIVATE PROPERTY

 RIGHT TO ACCUMULATE WEALTH
 FREEDOM TO PRODUCE & TRADE
 FREEDOM TO COMPETE
 RECOGNITION OF SELF INTEREST

Financial Accounting Theory | Soemarso SR

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MARKET MECHANISM

 SUPPLY & DEMAND

 MARKET
 PRICE  INVISIBLE HANDS
 EFFICIENT ALLOCATION OF RESOURCES

Financial Accounting Theory | Soemarso SR

 ADAM SMITH TP 1 – 4

THEORY OF SELF INTEREST

SELF INTEREST

BUYER SELLER

NEGOTIATION

EQUILIBRIUM
(PARETO OPTIMUM)

NATURAL PRICE

INDIVIDUAL
WEALTH

WEALTH OF
NATION

EFFICIENT
ALLOCATION OF
RESOURCES
Financial Accounting Theory | Soemarso SR
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HAK MILIK PRIBADI

KEPENTINGAN
KEBEBASAN PERSAINGAN
PRIBADI
(FREEDOM) (COMPETITION)
(SELF INTEREST)

CONFLICT OF SELF
OPPORTUNISTIC
INTEREST & PUBLIC
CHARACTER
INTEREST

BUSINESS

SURVIVAL FOR THE

FITTEST

MORAL HAZARD/
ADVERSE SELECTION
FRAUD

REGULASI ETIKA

Financial Accounting Theory | Soemarso SR

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MARKET FAILURE

 MARKET CONDITION  MARKET IMPERFECTION

 PRODUCT CONDITION  NATURAL MONOPOLY
 INFORMATION CONDITION  ASYMMETRIC INFORMATION

Financial Accounting Theory | Soemarso SR

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BUSINESS FINANCING

PROPRIETORSHIP

PARTNERSHIP

BANKING

AGENCY THEORY

CAPITAL MARKET

Financial Accounting Theory | Soemarso SR

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AGENCY THEORY
RELATION BETWEEN
 PRINCIPAL BASES: (1) NEED (DEMAND)
 AGEN (2) SELF INTEREST

DIFFERENT OBJECTIVE

DIFFERENT RISK BEHAVIOR

ASSYMETRIC INFORMATION

SELF INTEREST

OPPORTUNISTIC

 MORAL HAZARD/FRAUD
 ADVERSE SELECTION

OPTIMUM CONTRACT

 INCENTIVE
 MONITORING

INFORMATION
Financial Accounting Theory | Soemarso SR
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ACCOUNTING IN CAPITAL MARKET

PASAR

SURAT-SURAT PENGAMBILAN LAPORAN LAPORAN

BERHARGA KEPUTUSAN KEUANGAN AUDIT

KEWAJARAN &
PENINGKATAN KINERJA &
KESESUAIAN DENGAN
KESEJAHTERAAN PROSPEK STANDAR AKUNTANSI

PERTANGGUNG DIREKSI &

INVESTOR AKUNTAN PUBLIK
JAWABAN DEWAN KOMISARIS

PENGURUSAN & AUDIT LAPORAN

KEPEMILIKAN
PENGAWASAN KEUANGAN HISTORIS

PERUSAHAAN

Financial Accounting Theory | Soemarso SR

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ACCOUNTING THEORY & APPLICATION
TUJUAN
PELAPORAN KEUANAN

KERANGKA KONSEPTUAL
PELAPORAN KEUANGAN

KONSEP DASAR
AKUNTANSI

ASUMSI DASAR KARAKTERISTIK

KONSEP LABA
AKUNTANSI LAPORAN KEUANGAN

ELEMEN
LIMITASI AKUNTANSI
LAPORAN KEUANGAN

STANDAR AKUNTANSI

PRAKTEK AKUNTANSI

KEBIJAKAN AKUNTANSI PROSEDUR AKUNTANSI

LAPORAN KEUANGAN

Financial Accounting Theory | Soemarso SR

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ACCOUNTING THEORY CONSTRUCTION

 WHY THERE IS A DEMAND FOR FINANCIAL INFORMATION

 ACCOUNTING THEORY  MEASUREMENT
 ACCEPTANCE OF THEORIES
 EXPLAIN & PREDICT REALITY
 HOW IT IS CONSTRUCTED
 HOW ACCEPTABLE ARE THE IMPLICATION

 THEORY
 LOGICAL REASONING
 STATEMENT OF BELIEF

Financial Accounting Theory | Soemarso SR

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PRETHEORY

 DOUBLE ENTRY FORMALIZED IN 1400S

 NO THEORY OF ACCOUNTING
 UNTIL 1930S  ACCOUNTING THEORY  RANDOM & ILL DEFINED

Financial Accounting Theory | Soemarso SR

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PRAGMATIC THEORY

 1800 – 1955  GENERAL SCIENTIFIC PERIOD

 PROVIDING OVERALL FRAMEWORK  WHY ACCOUNTANTS
ACCOUNT AS THEY DO
 HISTORICAL COST ACCOUNTING & CONSERVATISM PRINCIPLE
 EMPIRICAL RATHER THAN DEDUCTIVE LOGIC
 1930S  THE BIRTH OF PROFESSIONALLY BASED CONCEPTUAL
THEORY
 DEVELOPMENT OF ACCOUNTING PRINCIPLES

Financial Accounting Theory | Soemarso SR

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PRAGMATIC THEORIES
ACCOUNTING THEORY CONSTRUCTION

 INDUCTIVE APPROACH  OBSERVATION OF BEHAVIOUR

 CRITICISM
 NO ANALYTICAL JUDGEMENT ON QUALITY
 NO ACCOUNTING TECHNIQUES TO BE CHALLENGED
 NOT MEASURING THE ATTRIBUTES OF THE FIRM

Financial Accounting Theory | Soemarso SR

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NORMATIVE ACCOUNTING

 1956 – 70  NORMATIVE PERIOD

 ESTABLISHING NORM FOR BEST ACCOUNTING PRACTICE
 LESS CONCERNED WITH WHAT ACTUALLY HAPPENED 
FOCUSED ON WHAT SHOULD HAPPEN
 TWO GROUPS
 CRITICS OF HISTORICAL COST ACCOUNTING
 CONCEPTUAL FRAMEWORK

 AAA  BASIC STATEMENT OF ACCOUNTING THEORY

 CRITICISM OF NORMATIVE ACCOUNTING THEORY
 DO NOT NECESSARILY INVOLVE EMPIRICAL HYPOTHESIS TESTING
 BASED ON VALUE JUDGEMENT

Financial Accounting Theory | Soemarso SR

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ACCOUNTING THEORY CONSTRUCTION
SYNTATIC & SEMANTIC THEORIES

 ON HISTORICAL COST ACCOUNTING

 SYNTATIC THEORY 
 NO SEMANTIC TEST  MEANING
 PRAGMATIC TEST  HOW TO USE
 ACCOUNTING IS SIMPLY SUMMATION OF ACCOUNT BALANCE
 AUDITING IS SYMPLY RECALCULATION

Financial Accounting Theory | Soemarso SR

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ACCOUNTING THEORY CONSTRUCTION

 TRUE INCOME VS DECISION USEFULNESS

 MEASUREMENT THEORY  DECISION USEFULNESS  CLASSICAL ECONOMICS
CONCEPT & RATIONAL DECISION MAKING
 ACCOUNTING  MEASUREMENT SYSTEM
 PROFIT & VALUE CAN BE MEASURED PRECISELY
 FINANCIAL ACCOUNTING  ECONOMIC DECISIONS
 MARKET ARE INEFFICIENT
 CONVENTIONAL ACCOUNTING IS INEFFICIENT
 ONE UNIQUE PROFIT MEASURE

 FINANCIAL INSTRUMENTALISM OR REALISM 

 INSTRUMENT FOR PREDICTION
 DESCRIPTION OF REALITY

 CONSTRAINTS
 DYNAMIC ENVIRONMENT
 INTERVENING VARIABLES UNCONTROLLED

Financial Accounting Theory | Soemarso SR

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POSITIVE ACCOUNTING THEORY

 BASED ON EMPIRICAL APPROACH

 FRAMEWORK FOR EXPLAINING THE PRACTICESS  DECISION
USEFULNESS OBJECTIVE
 THE OBJECTIVE OF POSITIVE ACCOUNTING THEORY  EXPLAIN &
PREDICT ACCOUNTING PRACTICE  BONUS PLAN HYPOTHESIS
 EXPLAIN THE ECONOMIC OR WEALTH EFFECT

Financial Accounting Theory | Soemarso SR

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POSITIVE THEORIES
ACCOUNTING THEORY CONSTRUCTION

 BACK TO EMPIRICAL METHODOLOGY

 TESTING HYPOTHESES  TESTING ON NORMATIVE ASSUMPTIONS
 CURRENT CONCERNED
 EXPLAINING THE CURRENT PRACTICE OF ACCOUNTING
 PREDICTING THE ROLE OF ACCOUNTING (AND INFORMATION) IN ECONOMIC DECISION

 DIFFERENCE OF NORMATIVE & POSITIVE

 NORMATIVE  PRESCRIPTIVE 
 POSITIVE  DESCRIPTIVE, EXPLANATORY OR PREDICTIVE

Financial Accounting Theory | Soemarso SR

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SCIENTIFIC & NATURALISTIC RESEARCH

Table 2.2 A Comparison of Scientific and Naturalistic Research

Scientific Research Naturalistic Research
Ontological  Reality is objective and concrete.  Reality is socially constructed and a
Assumptions  Accounting is objective reality. product of human imagination.
 Accounting is constructed reality.
Epistemological  Piecemeal advancement of  Holistic
Approaches knowledge  Complexity of the world cannot be
 Reductionism solved by reductionism
 Testing of individual hypotheses  Irreducible laws
 Law capable of generalization
Methodology  Structured  Unstructured
 Prior theoretical base  No prior theory
 Empirical validation or extension
Methods  Syntactic model formulation  Case studies
 Empirical induction to form  Exploration by flexibility
hypotheses  Experience of events
 Appropriate statistical methods

Financial Accounting Theory | Soemarso SR

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FRAMEWORK OF MAINSTREAM RESEARCH BASED ON

POSITIVE METHOD

 HYPOTHESES DEVELOPMENT
 ECONOMIC THEORIES SUPPORTING THE HYPOTHESES
 EMPIRICAL TEST USING ECONOMETRICS TECHNIQUES

EXPLAIN
 CONCLUSIONS  CONSTRUCT A THEORY
PREDICT

Financial Accounting Theory | Soemarso SR

THANK YOU

Financial Accounting Theory | Soemarso SR