Positive Accounting Theory

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Positive Accounting Theory and Science

JCC
Journal of CENTRUM Cathedra ™

Positive Accounting Theory and Science
by M. Humayun Kabir Senior Lecturer, Faculty of Business Auckland University of Technology, Auckland, New Zealand

Abstract
This paper examines the development of positive accounting theory (PAT) and compares it with three standard accounts of science: Popper (1959), Kuhn (1996), and Lakatos (1970). PAT has been one of the most influential accounting research programs during the last four decades. One important reason which Watts & Zimmerman (1986) have used to popularize and legitimize their approach is that their view of accounting theory is the same as that used in science. Thus, it is important to examine how far accounting has been successful in imitating natural science and how the development of PAT compares with the three standard accounts of science. This paper shows that accounting could not emulate the success of natural science. Further, the methodological positions of PAT conform to none of the standard accounts of science. Rather, PAT contains elements of all three. Finally, this paper identifies some methodological gaps in PAT. Keywords: Positive Accounting Theory, Philosophy of Science, Methodological Controversies

Acknowledgements
I would like to thank two anonymous reviewers of the journal for their helpful comments. Earlier versions of this paper benefited from comments from Lee Parker of the University of South Australia, Keith Hooper of Auckland University of Technology, Divesh Sharma of Kennesaw State University, and Santi Narayan Ghosh of the University of Dhaka.

Introduction
This paper examines the development of positive accounting theory (PAT) and compares it with three standard accounts of science. There is some confusion about what PAT is. If the definition of accounting theory (i.e., accounting theory seeks to explain and predict accounting and auditing practice) given in Watts and Zimmerman’s 1986 book is taken to mean PAT, studies of accounting choices and auditing practices constitute PAT. At the same time, they also seek to explain the economics-based empirical literature in accounting and they describe, in addition to accounting choice studies, capital market-based accounting research. They point out that Ball and Brown (1968) initially popularized positive research in accounting, suggesting that PAT includes both capital market-based accounting research and research in accounting choices. This paper takes PAT to include both research programs. This usage is consistent with Watts and Zimmerman’s (1986) assertion that when they use the term “positive” to differentiate it from “prescriptive” theory.

Positive Accounting Theory and Science

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PAT has been one of the most influential accounting research programs during the last four decades. It has spawned a great deal of empirical research on the association between accounting numbers and stock prices and returns, and determinants of accounting choices by management. It has spawned a number of accounting journals, among which the Journal of Accounting and Economics is the most prominent. Brinn, Jones, and Pendlebury (1996), in a survey of UK academics’ perceptions of journal quality, found that the top four accounting journals are the following: Journal of Accounting and Economics, Journal of Accounting Research, the Accounting Review, and Accounting, Organizations and Society. Articles published in the top three journals are predominantly in the positive tradition. The sheer number of articles in these two paradigms published in major accounting journals and the dominance of PAT in PhD programs in US and other universities testify to the dominant position of PAT. Thus, judged by the number of research articles, the number and dominance of the journals it spawned, and the dominance of PAT in doctoral programs, PAT has been immensely influential. Before the emergence of PAT, normative accounting...
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