Accounting Theory Solution Chapter 2

Questions
1.‘A theory that is purely syntactic is sterile.’ Comment. How can this statement relateto accounting?
A syntactic theory is one that is capable of testing on the basis that it is valid in terms of itslogical consistency. Thus the calculation of accounting profit and determination of assetvaluation can be valid in relation to their conformity with rules prescribing the measurementof accounting profit and asset valuations. This can be described as sterile as it does notnecessarily relate to the real world. Historical cost accounting has been represented as being purely a syntactic theory, with the semantic inputs to the system being the transactions andexchanges recorded in the accounting system, which are then aggregated and classified on the basis of the premises and assumptions of historical cost accounting. Examples of ‘rules’include the duality of the accounting entry system and assigning costs to assets and liabilitiesrather than market values. The output is verified via the auditing process. The sterility of thisapproach is based on the lack of imprecision of accounting concepts and the lack of association between the rules and how they produce output that is relevant to users of financial statements.
2.A pragmatic theory of accounting involves observing the practices and techniques of working accountants and teaching these to successive accountants.
(a)Argue the advantages and disadvantages of such an approach.
(b)Do you believe this method of teaching accounting is ‘correct’?
(a)A pragmatic theory is where we observe the behaviour of practising accountants and thencopy their accounting procedures and principles.Advantages:
• the solutions of practising accountants are related to the requirements of the business world
•they have developed (and been handed down) over a number of centuries
•it is a pragmatic approach to solving the problems of accounting.Disadvantages:
•no logical assessment (not deductive)
•does not allow change (or change occurs