Pragmatic Accounting

Topics: Financial statements, Maslow's hierarchy of needs, Balance sheet Pages: 14 (3985 words) Published: June 21, 2013
There is no generally accepted theory of accounting. There are a number of accounting theories (though a systematic attempt has been made by Financial Accounting Board (FASB) of USA and IASC and other to formulate a comprehensive theory of accounting). The definition of Accounting Theory given by Hendriksen as “a set of broad principles that (i) provide a general frame of reference by which accounting practice can be evaluated, and (ii) guide the development of new practices and procedures” lead us to perceive accounting theory as a basis of explanation and prediction. The primary objective of accounting theory, as it follows from this definition, is to provide a coherent set of logically derived principles that serve as a frame of reference for explanation/prediction of accounting events and behavior. Classification of Accounting Theories

There are several ways of classifying accounting theories. They may be classified, for example, according to time e.g. steward accounting, decision usefulness accounting, and accountability or societal responsibility accounting. Other ways of classifying theories can be (i) Inductive versus deductive, and (ii) normative versus positive. Glautier and Underdown are of the view that the roots of accounting theory are decision theory, measurement theory, and informational theory. Hendirksen says that “a useful frame of reference is to classify theories according to prediction levels” there are, according to him, three main levels of theory. The levels are as follows: 1) Structural or syntactical theories.

2) Interpretational or semantical theories.
3) Behavioural or pragmatic theories.

Behavioral or pragmatic theories:
These theories emphasize the behavioural or decision-oriented effects of accounting reports and statements. It has been noted that accounting is now regarded as a process of measurement and reporting information to the users- internal and external. Since 1945 onwards it is being realized that accounting is useful not merely to assess the result of past performance but also that it can be more useful in decision making by the management , shareholder, creditor, present and potential investors, government and others. The objective of accounting now is not only to provide information to management for decision making. Outsider interested individual and groups of individuals are also supplied necessary and timely information for making rational decisions. The focus is on relevance of information being communicated to decision makers and the behavior of different users as a result of presenting of accounting information, e.g. an effort to and be made to find out the extent to which security prices reflect fully and promptly all available information or what is the impact of providing price-adjusted accounting information during inflation on decision makers. It can thus, be seen that in recent times communication-decision orientation has been emphasized in the development of accounting theories. Behavioural theories attempt to measure and evaluate the economic, psychological and sociological effect of alternative accounting procedures and reporting media. ACCOUNTING is utilitarian. It represents a response to needs. The measure of its achievements at any point in time and in any particular context is the extent of this response to the needs of that particular time in that particular context. Underlying accounting standards represent the concept of usefulness.

The truth of this is evident in the decision-oriented accounting which forms such a large part of the accounting task. The accounting required to satisfy the demands of stewardship, law and regulation, and reporting minima, forms only a minor part of modern data processing and information systems. The detailed classifications and task-oriented analyses which are a feature of the modern system are justified only by their capacity to provide at the margin a value in excess of the incremental cost....
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Essay about An Introduction To Pragmatics
  • Semantics & Pragmatics Essay
  • Pragmatics Summary Essay
  • Main Theories in Pragmatics and How They Differ Essay
  • Pragmatics And Halliday Essay
  • Pragmatic Peculiarities of the Utterances with Subjunctive Mood in the Modern English Language Essay
  • The Pragmatic Aspect of Syntax. the Theory of Speech Acts Essay

Become a StudyMode Member

Sign Up - It's Free