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Introduction To Accounting Theory

This document discusses various accounting theories including: 1) Pragmatic theories such as the descriptive pragmatic approach and psychological pragmatic approach which are based on observing accountant and user behavior. 2) Syntactic and semantic theories which analyze accounting inputs and outputs but can produce results that are syntactically accurate but lack semantic accuracy. 3) Normative theories from the 1950-60s focused on deriving true income and practices that enhance decision usefulness. 4) Positive theories which expanded in the 1970s and are descriptive, explanatory or predictive of current accounting practice and information use.

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227 views30 pages

Introduction To Accounting Theory

This document discusses various accounting theories including: 1) Pragmatic theories such as the descriptive pragmatic approach and psychological pragmatic approach which are based on observing accountant and user behavior. 2) Syntactic and semantic theories which analyze accounting inputs and outputs but can produce results that are syntactically accurate but lack semantic accuracy. 3) Normative theories from the 1950-60s focused on deriving true income and practices that enhance decision usefulness. 4) Positive theories which expanded in the 1970s and are descriptive, explanatory or predictive of current accounting practice and information use.

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julita08
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Mutiara Inas Sari Nadia Citranti Julita Rachmadewi

041013039 041013080 041013256

Pragmatic theories
Descriptive pragmatic approach:
based on observed behaviour of

accountants theory developed from how accountants act in certain situations tested by observing whether accountants do act in the way the theory suggests is an inductive approach
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Pragmatic theories

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

Pragmatic theories
Psychological pragmatic approach:
theory depends on observations of the

reactions of users to the accountants outputs a reaction is taken as evidence that the outputs are useful and contain relevant information

Pragmatic theories

Criticisms of the psychological pragmatic approach:


some users may react in an illogical manner some users might have a preconditioned

response some users may not react when they should

Theories are therefore tested using large samples of people


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Syntactic and semantic theories

Semantic inputs are the transactions and exchanges recorded in vouchers, journals and ledgers

The inputs are then manipulated on

the basis of the premises and assumptions of historical cost accounting

Syntactic and semantic theories

Criticised because there is no independent empirical verification of the calculated outputs

The outputs may be criticised for poor syntax inaccurate e.g. different types of monetary measures are added together

Syntactic and semantic theories

The outputs may be syntactically accurate but nevertheless be valueless due to a lack of semantic accuracy (a lack of correspondence with real-world events, transactions or values)

Syntactic and semantic theories


Historic cost accounting may produce accurate outputs but which nevertheless have little or no utility That is, they are not useful for economic decision making except to verify accounting entries

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Normative theories

1950s and 1960s golden age


policy recommendations what should be concentrated on deriving: true income (profit) practices that enhance decisionusefulness based on analytic and empirical propositions

Financial statements should mean what they say

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Normative theories

True income:
a single measure for assets
a unique and correct profit figure

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Normative theories

Decision usefulness:
the basic objective of accounting is to aid

the decision-making process of certain users of accounting reports by providing useful accounting data

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Normative theories
The decision process

Accounting system of company X

Prediction model of user

Decision model of user

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Positive theories

Expanded during the 1970s Based on experiences or facts of the real world Explain the reasons for current practice Predict the role of accounting information in decision-making

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Positive theories

The main difference between normative and positive theories is that


normative theories are prescriptive positive theories are descriptive, explanatory

or predictive

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AICPA Terminology
Accounting : art of recording, classifying, transaction reviewing, and financial events which are in effective and efficient manner and in the form of monetary unit and interpret the result of the process.

Accounting as Ideology
Accounting : viewed as ideology phenomenon to support and to legitimate social structure, economy, and political nowadays. Karl Marx said that accounting shaped social relationships becoming productive effort.

Accounting as Language
Accounting : already viewed as business language. It can be a way to communicate information about business. Grammar language refers to set of general procedures used and followed in making all of the financial data for business needs.

Accounting as Record of Past Events


Generally accounting is viewed as a presentation way of company history and transaction done with other parties.

Accounting as Current Economic Reality


Main argument supporting this perspective is that whether statement financial position or income statement has to be reported based on estimation that depict current economic reality rather than historical cost.

Accounting as Information System


This assumes accounting as a process correlating information source or transmitter, communication channel, and receivers (external users) . And also it could be defined as process of encoding some of observation into information system language, manipulating reporting system signal, decoding, and transmitting the results.

Accounting as Commodity
Commodity here is defined as accounting output in the form of information needed on the process of decision-making

Accounting as Responsibility
This elaborates that source of wealth which is managed can be traced in order to be media to take the responsibility of company or institute management.

Accounting as Technology
Bambang Sudibyo (1987) said that accounting is software technology. It does not use for explaining and predicting certain economic / social variables but for control those variables to fix economic status because of the practitioners social status.

What is a theory?
Hendriksens definition: the coherent set of hypothetical, conceptual and pragmatic principles forming the general framework of reference for a field of inquiry.

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What is an accounting theory?


Hendriksens 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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Whether a theory is accepted depends on how:


well it explains and predicts reality well it is constructed both theoretically and

empirically acceptable its implications are

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