7101AFE Financial Accounting Theory And Practice

Topics: International Financial Reporting Standards, International Accounting Standards Board, Scientific method Pages: 3 (971 words) Published: April 20, 2015
7101AFE Financial Accounting Theory and Practice
Tutorial Questions for Tutorials 1- 6: Semester 1 2015
TUTORIAL 1 - Semester 1 2015

Deegan Topic 1: Introduction to financial accounting theory

QUESTION 1 – Question 1.2:
If you developed a theory to explain how a person’s cultural background influences how they prepare financial statements, would you have developed a positive theory or a normative theory?

The first of all, it is important to understand the mean by a ‘theory’. According to Contemporary Accounting Theory 4e,

Oxford English Dictionary provides various definitions, including: A scheme or system of ideas or statements held as an explanation or account of a group of facts or phenomena

A positive theory based on some assumptions and, through logical deduction, enables some predictions to be made about the way things will be. In particular, their success in explaining or predicting particular phenomena will then typically be assessed based on observation. For instance, Watts and Zimmerman’s positive theory of accounting relying on the other researchers such as Jensen and Meckling (1976) and Gordon(1964).

A normative theory based on the norms (or values or beliefs) held by the researchers proposing the theories. For example, Chambers issue has paid attention by researchers, however, they recognised and measured in different ways.

If I developed a theory to explain how a person’s cultural background influences how they prepare financial statements, I will develop a positive theory. (Word count: 170)

QUESTION 2 - Question 1.3:
What is a conceptual framework, and would it be considered to be a positive or a normative theory of accounting?

According to IFRS website shows, the definition of Conceptual Framework follows: The Conceptual Framework sets out the concepts that underlie the preparation and presentation of financial statements. It is a practical tool that assists the IASB when developing and revising IFRSs. The...
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