Accounting Theory

Deductive approach

Inductive Approach

 Makes observation
 Draws conclusions from observation
 Moves from “specific” to “general”
 Researcher generalizes about the universe on the basis of limited observation of specific
situations

Specific to general is looking at individual cases and try to come up with at over all theory to suit
each case.

This Approach is useful when nothing is now about the area we are researching.

Pragmatic Approach - Is a response to a particular need.

Based on the concept of utility or usefulness.

1. Identify problem
2. attempts to find a utilitarian solution

e.g. Financial accounting was a response to the need shareholder to obtain information. Before
investors would invest and hope to get their return. But with the financial statements, they have a
sense of what the company is doing. In extension, they formulate someone to check if the
financial statements are accurate.

 Does not suggest that the optimum solution has been found; or
 that the solution will accomplish some stated objective.
 Any answers obtained through the pragmatic approach should be viewed as tentative
solutions to problems.
So, for instance, with the regulating of statements by auditors, the auditors may now
become comfortable and know the accountants, which creates another problem

E.g. World com cause author Anderson to fall. Because they were the auditors for world
com. They had an office in world come office and become friendly and began doing work
for world come. When something looked. The whistle was blown, and investigation was
done. A lot was found that financial statements were not done properly, and auditor got
rid of information for the company.