Reading 1.

2 - Accounting theory and development

Accounting Theory Construction with Inductive and deductive approach

Deductive approach vs. Inductive approach in accounting theory

construction
Deductive reasoning entails a valid argument in which it is impossible to
assert the premises and to deny the conclusion without contradicting
oneself.

Deductive approach to accounting theory construction begins with

establishing the objective of accounting. Once identified, definitions and
assumption must be stated.
The researcher must then develop a logical structure for accomplishing the
objectives, based on the definitions and assumptions.

The methodology is often be “going from the general to the specific” as the
research must develop a logical structure for accomplishing the objective
then, which based on the definition and assumptions.

The validity of any theory developed through this process is highly

dependent upon the ability of the researcher to correctly identify and relate
the various components of the accounting process in a logical manner.

Induction is a method of reasoning by which a general law or principle is

inferred from observed particular instances.

Inductive approach emphasis making observations and drawing conclusions

from it and is often be “ going from specific to general, because the
research generalizes about the universe on the basis of limited observations
of specific situations. The inductivist is to draw theoretical and abstract
conclusion from rationalizations of accounting practice.

Applied to the accounting, the inductive approach begins with observations

about the financial information of business enterprises and proceeds to
construct generalizations and principles of accounting from those
observations on the basis of recurring relationship.
Reading 1.2 - Accounting theory and development

Accounting Theory Construction with Inductive and deductive approach

Normative theory vs. Positive theory

Normative theory attempts to justify what ought to be, rather than what is.
The major criticism of normative theories is that they are based on value
judgments.

Positive (Descriptive) theories attempt to find relationships that actually

exist. Deductive systems are normative and inductive systems attempt to be
descriptive. The deductive method is basically a closed, non-empirical
system.

Theory verification
Theory verification or validation is an integral part of theory construction.
According to Popper, the testing of deductive theories could be carried out
along four lines. There is the testing of the theory by way of empirical
applications of conclusion, which can be derived from. This step is
necessary to determine how the theory stands up to the demand of
practice.
If its predictions are acceptable, the theory is said to be verified otherwise,
the theory is said to be falsified.

Aspects of theories, their construction and verification

Figure 2

Distinguishing features Analytic Synthetic

Source Assumption Specific observations
Reasoning Deductive Inductive
Epistemological basis Rationalism Empiricism
Type of science Analytical Empirical
Theory type Prescriptive Descriptive
Verification Logical Logical, empirical