Accounting is a very old science as it is strictly related to the first forms of trade in the old world. According to Belkaoui (1992: 22), the Committee on Terminology of American Institute of Certified Public Accountants (AICPA) defines accounting as follows: "Accounting is the art of recording, classifying and summarising in a significant manner and in terms of money, transactions and events which are in part at least, of a financial character, and interpreting the results thereof." Belkaoui (1992: 22) believes that such a definition is limited and a broader alternative is offered that defines accounting as: "The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information." Historical Background
The history of accounting is of importance to those wishing to understand existing and future accounting practices. Historically, the first form of accounting practices was bookkeeping. Bookkeeping resulted from a need of ancient traders in Chaldean, Babylonian, Akkadian, and Assyrian civilizations (Belkaoui, 1992). Those ancient traders developed advanced trading practices to track their costs and incomes. This of course, led to record keeping as the best. Belkaoui states that the earliest known form of record keeping dates back to 3000 B.C. which was found in Old Irak (Belkaoui, 1992). Egyptian and Chinese civilisations also had old accounting practices for handling both treasury and other government accounts. In Greek civilisation, there was a famous accountant named Zenon. He managed the estates of Apollonius (a Greek minister of finance). Zenon was the first to introduce the first Responsibility Accounting System according to Belkaoui (1992). In the Roman civilisation, taxes and social classes were dependent on declared properties. As a result, taxpayers were supposed to submit clear financial statements. Of course, these factors enforced the existence of bookkeeping in the ancient world. During the sixteenth, seventeenth and eighteenth centuries, a huge transition in accounting took place. Luca Pacioli introduced the Italian double-entry method. Later on, new methods were introduced to handle fixed assets (Belkaoui, 1992). According to Schroeder and Clarke (1998), between the years 1900 and 1973, several bodies were introduced to establish and improve financial accounting standards, practices, and reporting. These bodies included the American Institute of Accountants (AIA) which was established in 1916.Then, in 1934, the Securities and Exchange Commission (SEC) was established. In 1937, the American Institute of Certified Public Accountants (AICPA) was formed as a result of a merger between the AIA and the American Society of Certified Public Accountants(Schroeder and Clarke, 1998). Accounting Theory
A theory in its simplest form is an explanation of a certain phenomena, a set of observations. The theory can be understood as a generalisation used to organise data into meaningful information. Glautier and Underdown (1991) argue that theories are supposed to be concerned with the explanation of a set of observations. Also, they argue that relating an existing theory to a set of observations or coming up with a theory that relates to a set of observations is essentially having the same objective which is providing an explanation to these observations. Need for an Accounting Theory
Webster define a theory as "a systematic statement of principles." Also, it gives a more detailed definition: "A formulation of apparent relationships or underlying principles of certain observed phenomena which has been systematically accumulated, organised, and verified well enough to provide a frame of reference for future actions" (Schroeder, Richard et al., 1998:1). The second definition gives some reason for the need of an accounting theory. These reasons include organising accounting practices and handling future changes. Of course, a theory...