accounting theory

Topics: Financial statements, International Financial Reporting Standards, Economics Pages: 19 (5620 words) Published: September 26, 2014
TUTORIAL 1 – Semester 1 2014
Deegan Topic 1
Introduction to financial accounting theory

1.1  What is the difference between a positive theory of accounting and a normative theory of accounting?

1.6  The IASB and the FASB are currently developing a revised conceptual framework of financial reporting. If you have been asked to review the framework—which is an example of a normative theory of accounting—why would it be important for you to pay particular attention to how the objective of financial reporting is defined within the framework?

1.8 What is the difference between developing a theory by induction and developing a theory by deduction?

1.9 Is the study of financial accounting theory a waste of time for accounting students? Explain your answer.

1.28 What do we mean when we say that ‘theories are abstractions of reality’? Do you agree that theories of accounting are necessarily abstractions of reality?

1.31 Would you reject as ‘insignificant and useless’ a positive theory of accounting on the basis that in a particular research study the results derived failed to support the hypotheses and the related theory? Explain your answer. 3101AFE

TUTORIAL 2 - Semester 1 2014
Deegan Topics 2 and 3
Name: Anum Mushtaq Khan
Student I.D: s2854249
Tutorial Time: Tuesday, 4-5p.m.

The financial reporting environment and The Regulation of financial accounting 2.1 What expectations do accounting standard-setters have about the accounting knowledge of financial statement readers? Ans) Accounting standard-setters have an expectation that the readers of general purpose financial reports have a ‘reasonable knowledge’ of accounting. Specifically, the IASB Framework states that ‘users are expected to have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information with reasonable diligence’. Hence, there is an expectation that financial statements are not tailored to meet the needs of people who have not, in some way, studied financial accounting. If financial reports/financial statements were to be prepared so that anyone would understand them, it would be necessary to include a great many explanatory notes. These notes would have to include definitions of all the terminology used, never mind everything else. The costs of doing so would be prohibitive and would, effectively, mean that every financial report included a mini manual on accounting. This would be unlikely to benefit anyone ‘perfectly’ -- it would either be too little, or too much, most likely the latter, serving only to overwhelm users of those reports/statements with information which is largely unnecessary for their needs. (178 words)

2.3Do you believe that the media portray accounting numbers, such as profits, as some sort of ‘hard’ and objective performance indicator? Why do you think they might do this, and, if they do, what are some of the implications that might arise as a result of this approach? Ans) In making this judgment, we should consider the various articles that frequently appear in newspapers and various discussions that occur on television and radio in relation to an organization’s profits. Media plays a vital role in portraying accounting numbers and makes a view to the public regarding ones shares or profits. It is then the media through whom we public get an idea about a company’s boost or recession or bankruptcy. It results in an approach of the public to then start believing in the manner of the media’s portray ion as media is the core source of information to public these days. (103 words)

2.12Pursuant to capture theory, how, by whom and why would a regulator be captured? Ans) Presuming that the regulatory agency was established for the purpose of correcting inefficiency, when the industry captures the agency, the inefficiency is not corrected. In fact, industry control of the agency can even worsen inefficiency. Regulatory capture occurs...
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