Prepared by Arabella Volkov
University of Southern Queensland
References
Text – Chapter 3
Accounting theory
construction
Learning Objectives
At the conclusion of this lecture, you should
have an appreciation of:
• how pragmatic approaches to theory
development apply to accounting
• criticisms that have been levelled at
historical cost accounting as a theoretical
model
• normative true income theories and
the decision-usefulness approach
Learning Objectives
At the conclusion of this lecture, you should
have an appreciation of:
• how positive accounting theories are
constructed
• alternative naturalistic approaches and
the importance of ontology
• misconceptions associated with scientific
approaches to accounting research, and
why they are misconceptions
Pragmatic theories
– Descriptive pragmatics
• observe behaviour of accountants
• inductive approach
• no logical assessment of actions
• does not allow for change
– Psychological pragmatics
• observe reactions of users
Syntactic and semantic
theories
• Semantic inputs (recorded
transactions)
– Vouchers
– Journals
– Ledgers
Syntactic and semantic
theories
• Historical cost criticisms
– Poor syntax (different monetary
measures added)
– Semantic deficiencies
• Semantic inputs
– Manipulated on the basis of the
premises and assumptions of historical
cost model
Syntactic and semantic
theories
• No empirical verification of outputs
– different acceptable accounting
techniques
Fixed assets should be carried at cost…in
historical accounts, unless such cost is no
longer meaningful.
(Chambers)
Normative theories
• 1950s and 1960s ‘golden age’
– policy recommendations
– what should be
– concentrated on:
• true income
• decision-usefulness
– based on analytic and empirical
propositions
Financial statements should mean what
they say
Normative theories
Decision usefulness
Accounting
system of
company X
Prediction
model of
user
Decision
model of
user
The decision process
Positive theories
– ‘experiences’ or ‘facts’ of the real
world
– explaining reasons for current practice
– predicting the role of accounting
information in decision-making
Different perspectives
• scientific approach vs. ‘naturalistic’
research
CATEGORY ASSUMPTION
1.
2.
3.
4.
5.
6.
Reality as a concrete structure
Reality as a concrete process
Reality as a contextual field of information
Reality as a symbolic discourse
Reality as a social construction
Reality as projection of human imagination
Different perspectives
Scientific approach applied
to accounting
Misconceptions of purpose
• Scientists out of accounting
practitioners?
• Researcher v. practitioner
• Assumption of ‘absolute truth’
• Scientific method attempts to
description, explanation and/or
prediction
Key terms and concepts
•
•
•
•
•
•
Positive
Normative
Pragmatic
Historical cost
Ontology
Theoretical model
Summary
• Many different approaches to
theory formulation in accounting
• Evolution of accounting theory
– positive v. normative
– scientific v. naturalistic
Where to get more
information
• Other courses
• Accounting Handbook
– SACs 1-4
• List books
• Articles
• Electronic sources