1/15/2010

GODFREY
HODGSON
HOLMES
TARCA

CHAPTER2
ACCOUNTINGTHEORY
CONSTRUCTION

Pragmatictheories
Descriptivepragmaticapproach:
basedonobservedbehaviourofaccountants
theorydevelopedfromhowaccountantsactin
certain situations
certainsituations
testedbyobservingwhetheraccountantsdo
actinthewaythetheorysuggests
isaninductiveapproach

Pragmatictheories
Criticismsofdescriptivepragmaticapproach:
doesnotconsiderthequalityofanaccountants
action
doesnotprovideforaccountingpracticestobe
does not provide for accounting practices to be
challenged
focusesonaccountantsbehaviournoton
measuringtheattributesofthefirm

1/15/2010

Pragmatictheories
Psychologicalpragmaticapproach:
theorydependsonobservationsofthe
reactionsofuserstotheaccountantsoutputs
areactionistakenasevidencethattheoutputs
a reaction is taken as evidence that the outputs
areusefulandcontainrelevantinformation

Pragmatictheories
Criticismsofthepsychologicalpragmatic
approach:
someusersmayreactinanillogicalmanner
someusersmighthaveapreconditionedresponse
some users might have a preconditioned response
someusersmaynotreactwhentheyshould

Theoriesarethereforetestedusinglarge
samplesofpeople
5

Syntacticandsemantictheories
Semanticinputsarethetransactionsand
exchangesrecordedinvouchers,journalsand
ledgers
Theinputsarethenmanipulatedonthebasis
ofthepremisesandassumptionsofhistorical
costaccounting

1/15/2010

Syntacticandsemantictheories
Criticisedbecausethereisnoindependent
empiricalverificationofthecalculatedoutputs
Theoutputsmaybecriticisedforpoorsyntax
h
b i i i df
inaccuratee.g.differenttypesofmonetary
measuresareaddedtogether

Syntacticandsemantictheories
Theoutputsmaybesyntacticallyaccuratebut
neverthelessbevaluelessduetoalackof
semanticaccuracy(alackofcorrespondence
with realworld
withreal
worldevents,transactionsor
events transactions or
values)

Syntacticandsemantictheories
Historiccostaccountingmayproduce
accurateoutputsbutwhichnevertheless
havelittleornoutility
Thatis,theyarenotusefulforeconomic
That is they are not useful for economic
decisionmakingexcepttoverifyaccounting
entries

1/15/2010

Normativetheories
1950sand1960sgoldenage
policyrecommendations
whatshould be
concentratedonderiving:
trueincome(profit)
i
( fi )
practicesthatenhancedecisionusefulness

basedonanalyticandempiricalpropositions
Financial statements should mean what
they say
10

Normativetheories
Trueincome:
asinglemeasureforassets
auniqueandcorrectprofitfigure

11

Normativetheories
Decisionusefulness:
thebasicobjectiveofaccountingistoaidthe
decisionmakingprocessofcertainusersof
accountingreportsbyprovidingusefulaccounting
g p
yp
g
g
data

12

1/15/2010

Normativetheories
Thedecisionprocess

Accounting
system of
company X

Prediction
model of
user

Decision
model of
user

13

Positivetheories
Expandedduringthe1970s
Basedonexperiencesorfactsofthereal
world
Explainthereasonsforcurrentpractice
l i h
f
i
Predicttheroleofaccountinginformationin
decisionmaking

14

Positivetheories
Themaindifferencebetweennormativeand
positivetheoriesisthat
normativetheoriesareprescriptive
positivetheoriesaredescriptive,explanatoryor
positive theories are descriptive explanatory or
predictive

15

1/15/2010

Differentperspectives
Scientificapproach:
hasaninherentassumptionthattheworldtobe
researchedisanobjectivereality
iscarriedoutbyincrementalhypotheses
is carried out by incremental hypotheses
hasanimpliedassumptionthatagoodtheory
holdsundercircumstancesthatareconstant
acrossfirms,industriesandtime

16

Differentperspectives
Criticismofthescientificmethod:
largescalestatisticalresearchtendstolump
everythingtogether
itisconductedinenvironmentsthatareoften
it is conducted in environments that are often
remotefromtheworldofortheconcernsof
accountants

17

Differentperspectives
Naturalisticapproach:
impliesthattherearenopreconceived
assumptionsortheories
focusesonfirm
focuses on firmspecific
specificreal
realworld
worldproblems
problems

18

1/15/2010

Differentperspectives
Alternativewaysoflookingattheworld:
CATEGORY ASSUMPTION
1.
1
2.
3.
4.
5.
6.

Reality as a concrete structure

Reality as a concrete process
Reality as a contextual field of information
Reality as a symbolic discourse
Reality as a social construction
Reality as projection of human imagination

19

Differentperspectives
Forcategories1 3itismoreappropriateto
usethescientificapproach
Forcategories46thenaturalisticapproachis
i
6 h
li i
hi
moreappropriate

20

Differentperspectives

21

1/15/2010

Scientificapproachapplied
toaccounting
Misconceptionsofpurpose
Makescientistsoutofaccountingpractitioners
Researchers=practitioners
Thedesirefor
The desire for absolute
absolutetruth
truth

22

Scientificapproachapplied
toaccounting
Thescientificmethoddoesnotclaimto
providetruth
Itattemptstoprovidepersuasiveevidence
which may describe explain or predict
whichmaydescribe,explainorpredict

23

Issuesforauditingtheory
construction
Auditingisaverificationprocessthatis
appliedtotheaccountinginputsand
processes

24

1/15/2010

Issuesforauditingtheory
construction
Auditorsprovideanopinionon
whetherthefinancialstatementsaccordwiththe
applicablereportingframework
whetherthestatementsgiveatrueandfairview
whether the statements give a true and fair view

25

Issuesforauditingtheory
construction
Thenormativeeraofaccountingcoincided
withanormativeapproachtoauditingtheory
Thepositiveereofaccountinghasledtoa
positive approach to auditing theory
positiveapproachtoauditingtheory

26

Summary
Manydifferentapproachestotheory
formulationinaccounting
Evolutionofaccountingtheory
positivev.normative
iti
ti
scientificv.naturalistic

27

1/15/2010

Keytermsandconcepts

Descriptivepragmaticapproach
Psychologicalpragmaticapproach
Syntacticandsemantictheories
Historicalcostaccounting
Normativetheories
Positivetheories
Scientificapproachtotheory
Naturalisticapproachtotheory
Auditingtheory

28

29

10