Accounting Theory

Topics: Economics, Decision theory, Decision making Pages: 18 (4494 words) Published: July 5, 2010
Table of Contents


Prescriptive Theory and Descriptive Theory3

Economic Theory4

Decision Usefulness Theory5

Critical Accounting Theory and Critical Theory6

System-Oriented Theories7

Open System Theories8

Behavioral Decision Theory9

Legitimacy Theory10

Political Economy Theory11

Institutional Theory12

Stakeholder Theory13

Agency Theory14

Normative Theory15

Public Interest Theory16

Capture Theory17

Economic Interest Theory/Private Interest Theory17

Positive Accounting Theory18

Chambers' Theory of Accounting19

Trickle Down theory20


Many accountants are familiar with the accounting standards and practices. They are always keeping their eyes on new standards and regulations roll-out. On the back of the new accounting practices, there are many accounting theories supported. Accounting standards are developed based on many descriptive and prescriptive accounting theories which were derived from many researches and studies performed by scholars and professionals. The backgrounds of the researches and studies are supported by some theories as well. The motivations of scholars in performing their studies, the society needs of new regulations as well as the information disclosure behaviors of entities can also be explained by theories. Various theories for and against regulation of financial accounting are discussed by the public. Various theoretical perspectives, including those provided by Positive Accounting Theory, Political Economy Theory, Stakeholder Theory, Institutional Theory and Legitimacy Theory can explain different types of voluntary reporting decisions. Critical (Accounting) theory, Behavioral Decision Theory Open System Theories and Decision Usefulness Theory goaded scholars and researchers to perform studies.

Prescriptive Theory and Descriptive Theory

Prescriptive theory means how accounting should be undertaken while descriptive theory means how accounting was generally performed.

There are many studies and researches performed around decision-makers emphasis and the decision-models emphasis. The aims of the studies are that the accounting experts want to figure out what information the financial statements users needs in order to develop the accounting frameworks. The users can rely on the information in making economic decisions. Some accounting professional develop prescriptive frameworks focused on the standards and presentations of financial reporting. Some accounting professionals concentrate on developing descriptive frameworks to express how accounting was generally performed. Prescriptive and descriptive accounting theories are inter-related. In general, prescriptive accounting frameworks are established based on the descriptive accounting frameworks.

Accounting conceptual frameworks are revised over time in order to reflect changes in markets, business practices and overall economic environment. Different countries have inconsistent frameworks because of different environment. However, with increasing use of IFRSs, it seems that global uniformity adopted by accounting regulators.

Why scholars and researchers in different countries are motivated to work on those studies? The objective is to ensure everyone in a community is treated fairly. Everyone can obtain the useful and meaningful information to make economic decisions. According to the results of the studies ad researches, accounting standard-setters and regulators therefore review and amend the organization financial disclosure requirements in order to ensure everyone is protected.

Economic Theory

Reiter (1995), Economic theories tend to value the characteristics associated with the masculine stereotypes such as abstraction, mind, efficiency, equilibrium, rationality, pursuit of self-interest, and autonomy The opposite characteristics of concretism, body, randomness, humanity, mutuality and connectedness,...

References: Levine, M.E. and J.L. Forrence (1990) “Regulatory Capture, Public Interest, and the Public Agenda Toward a Synthesis,” Journal of Law, Economy and Organization, 6: 167-198.
Bushman, R. & A. Smith (2001), ‘Financial accounting information and corporate governance’. Journal of Accounting and Economic, 32, pp.237-333
Reiter, S
Gary, R.D. Owen & C. Adams (1996), Accounting and Accountability: Changes and Challenges in Corporate Social and Environmental Reporting, London: Prentice hall.
Watts, R.L. (1995), ‘Nature and origins of positive research in accounting’, in S. Jones, C. Romano & J
Ratnatunga (eds), Accounting Theory: A Contemporary Review, Sydney: Harcourt Brace, pp.295-353.
Friedman, M (1953), The Methodology of Positive Economic, Essays in Positive Economic, reprinted in 1966 by Phoenix Books edn, Chicago: University of Chicago Press.
Lindblom, C.K. (1994), ‘The implications of organizational legitimacy for corporate social performance and disclosure’. Critical Perspectives on accounting conference, New York.
DiMaggio, P.J. & W. W. Powell (1983), ‘The iron cage revisited: institutional isomorphism and collective rationality in organizational fields’. American Sociological Review, 48, pp. 146-60.
Carpenter, V. & E. Feroz (2001), ‘Institutional theory and accounting rule choice: an analysis of four US state governments’ decisions to adopt generally accepted accounting principles’, Accounting, Organizations and Society, 26, pp. 565-96.
Freeman, R. (1984), Strategic Management: A Stakeholder Approach, Marshall, MA: Pitman.
Chambers, R.J. (1966), Accounting Evaluation and Economic Behavior, Englewood Cliffs, NJ: Prentice Hall.
Libby, R. (1975), ‘Accounting ratios and the prediction of failure: some behavioral evidence’, Journal of Accounting Research, 13(1), pp. 150-61.
Roslender, R. (1995). Accounting for strategic positioning: responding to the crisis in management accounting. British Journal of Management, 6(1), 45-57.
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Positive vs Normative Accounting Theory Research Paper
  • Accounting Theory Research Paper
  • Accounting Theory Question Essay
  • Positive Accounting Theory Essay
  • Accounting Theory Exam Review Essay
  • Financial Accounting Theory & the Reporting Environment Essay
  • Financial Accounting Theory Essay
  • Essay about Creative Accounting

Become a StudyMode Member

Sign Up - It's Free