W Accou eine theory construction Alter eng his Pater you soul have an aprecition o the flowing how pragmaticapronches to theory development appt 2eaunting [Bcc hat have en eve at irl ct accountng theo adel oma rico hee she daclon tafe peach 6 ‘ecoumting theory 1 how postive heres ae construe steratve natalie sprcacher and he portance of nly 1 rrsconceptios sociated wih cet approche ta accounting search, and why they are misconceptions| sel way to dy and ater accounting thes sto casi hem according fhe assumptions they eely on, how they were formated, and their approaches to ‘Silaining and preticing aesal event. Some of the cassfcations hat have proven Ios urefol are pragmatic, synacic seman nonnative, postive and naturalistic Spproaches. Pragmatic approaches are based on observing the behtour of acrountants Drthose who wse te information generted by acouniants, Sytatcappronhes rly ‘on logical argument based on ae of premise, and semantic apposdhes concer how theories corespond to real world event. Normative theories rely on both senantic nd syntactic aprogches, Posive approaches test hypotheses agains actual evens 2d naturalistic approaches consider Individual ess and donot ty to generalise. "This chapter proves some insight ito how acounting theotes In each ofthese lasfcations were formulated. We also note some ofthe weaknesses an cls Sfvatious theoes, Later chapters consider the dren ypes of thony In deta ‘elton to patelar accounting es, {EH PRAGMATIC THEORIES Descriptive pragmatic approach “The ésciptvepragiate approach to accounting theory constuction isan inductive approach its based on continual observation of the behaviour of accountants inonier to copy thelr accounting procedures and principles Hence. a theory can be {eweloped fom observations of haw acountans ain ean shuations. The theory fan be tsed by observing whether accountants din Zack act in the way the theory ‘Saget Sling called thie method the ‘anhopoogia preach ite acouing onopologiat har obverse tht accountingman non renee ‘ousstve Bue andgenerie thie encpe of conseeton chen wet {eth pine by abesing whether or not scouting man dos in ft record 8 onset gute, he acrontingantopoiogt se forint prince of vey, ‘hen we cant is prcipe by observing ete or ot ecounting an doesn ac ‘ested snlarecurences in dferent way Aad 0 fo “The desciptve pragmatic approach ie prably the oldest and most universally sed method of counting theory construction. Unt sue een was a popular way of Tenaing accounting sills aue accountants were tained by beg apprenticed or stile a pacing accountant Hower there have been several elms of this approach 1 accounting theory 1 The descriptive pragmatic approsch doe not inciude an analytical judgement of the {gusliy of en acrountans actions: there sno sessment of whether the accountant Feport in the way he or she should «Ts approach doesnot provide for accountng techniques tobe eiallenged hence it ‘oes not lle for change, For example, we dbsere raising accourants’ methods Sd techniques and teach those methods and techniques students. Those sudents ‘wl Become practising accountants hor we wl observe ithe ure Tear what teach, and s9 00, + the descriptive pragmatic approach focuses attention on acountany! behaviour, no ‘on measting the atibotes ofthe Gum, suchas sss Hablies and prof. aking 2 cesrpine pragma approach, we are aot cancening ourselves withthe semantics ff aewunting phenome, DiStating comments: iti my vale jee tat the theory of ccumng aught fo be cence with Scounung phenomena ot pacing sxounans, nthe same wy tha thet oF bps are concemed wih plysial penomens, oo racing physics? Sting concudes that such a pragmatic approach is inappropriate for accounting ‘heoryconsiniction His conelsion iy of course in elation to normative theres of how accounting shouldbe conducted rather han pragma theres that desibe sel. weld practi. Psychological pragmatic approach In conran wo decpte progatc approaches whee Uno observe scountane” Tehuour, pyccogeal pragmatic spprenchce rope thera fo ose ec ‘poms tote azounan pips ich a ancl wpa), A veacion Wythe {Gar iaken arene ta he anal sateen awe ad con ean Infomation. prelem wi the phological pragma approach is that some uses ‘hay eatin anlogeal manner sme ighthaveaprecondivone wapons an othe {tay no ext when hy soul Ti aotoning oreo byeonenaig dehion ier andsting them tage amples of poole rae han coneeneting cntheraponacof india [SER SYNTACTIC AND SEMANTIC THEORIES (One theoretic interrecaton of wadonl historic os acountng is thats angel a sytacithecy.Tisintnpetation may be descbed as llows th semanic inputs ‘sim are the tansacions and exchanges recordin the vouchers, oumals and ledgers Othe busines. Thee ar thes ranlpulated (paioned and summed) on de Basis of ‘he premises and assumptions of hora cou accounting, For example, we assure {ation eno wo be ended and matt wales of sete ad abe ar gore ‘We ten te doubleeniry secourng and the principles of historia os accounting © ‘aul rot ndloes andthe nancial positon. Thelndividalpropostionareverified tery time the satements are audited by checking the aleuaions and manipulations wove theaceumts ar rely abdied special in ems of whether and how people ‘ioe ther ( pragmaticten) rin ems of what dey mea (a senate tx). cis vray, torical cast teary hasbeen confimed many times. fe assume a Lalaosin ‘esearch program, te pnp of historical cos ecouting for the negative ease 2nd ina Kain iewpoinc the dorinancparadign. ‘Some accounting theorists ae cel of is approach They ange thatthe theory hae semaniiecontnt ony on the basis of ts inputs There sn independent empires ‘peraon to vey the caleulted outpis, for example ‘rai of ‘otal ase These gute ae not observed: they ae simple surmations of acount balances 2nd the ‘ting proces ign exsence simply a reclelation, The auditing proces ves the Inputs by examining undeying documents and checks mathematical ealeaions. wore doesnt verify the ral ouput This means that eve if accounting repos are prepared using perfect yma, they may have ile f any value in practic: Stalag comments: "The indequacy ofthis procedure o confmn 4 theory is fmmeditelyappaen. I ‘ne weet tempt cfm hey of avon, me exe y «pare Hansatam, then ane might bein by cheng onthe sceurcy of te sero Trp and one might aaa chick for eocsincompataton, However, atsome point thecuts ofthe sate wou! be eed Oe woul ook at the ly os i he Stats ‘tevin the pon dese byte planeta, Inthe absence his as step. scl aberdes could et Fay these qatins cou esrb any sation aowre eg a eangaar obi Mone retited the Weticaion proce to 2 The om the toney ofthe Inputs and sweeten then one woul carly Cat {his placa presets the postion ofthe stats, The nly way dcove hat the bit ought or ough ot to be ean perform a septate operation ad “Compare the esl of at operon eth the outpet ofthe tem enough of ese ‘Gupte were sblecedto dope vetifenton, te eoy of ean bis Sold be eer confmed or confirmed. Seed, idee wee two planetaruns “Shere wi te sme pehomnens bt wih illeent set of equa resign ‘Gruadctory ouput ten te audung roost woul equi tiatbot of then be (Gries cnet lea lnc one of them i ecnnly wrong lithe nmber ‘Taft ofeustine wih diferent opts ties” The following anicledemonatates the importance of ensuing thatthe syntax nd seman se nt only core, bot ako complet De share pres ris when profit improves? Bonuses soften wi by Sue Mice Meta has ren employee sie and noone ctr fos but has stent the Dhow for sn excctves by ofering $1 lon lang te reteion panes Shes. retention fle ae cndiinal on Mca sehevirg 3 compound 8 pe cen incense ln sings pe hse ov he et ve yar wee previous ors mee to In2008 and 2004, race centonsl on Metsah along compound ering per sae ttn of 12.8 pr cet sn 19 pr eases. “Ihe daclaing hurdle rae for reeton bose elects he slowing grows otto for ‘Macash ster Re $200 illonaequttion of Fodau's Australian operons in 2005, Spot tho acrusalon tere squat of acces to potently 0 an exc ‘ost that ae Nord Brough sad Detach Bn anlyst Kisan Wale “tas incense shaey 3p erin 2003 and oreaing mor growth «hsyear divine andearings ough a cambnatonf erga rw and aco et she roe eo cote at $429 yesterday. ‘Questions Te arcl describes » maa eacton oaecoutng ews. Tes escrpion provides an exemple al which approach whoo (3) pragmatic (by Sms {9 saan plain your answer. 2. Consider the floving slogan: ‘ina company reports baer prospect than previously vests force that company’s ore pce nctese 1 iccash ss empany tht his eped beter eaings per sare than previously 1 Invest otced Msc shure pest creat. (a) thee nw inthe saw er sematis tla the son that means {oncsion fo at faa hat ithe fa Ht: Consider wheter the geese Prarie at he tar of te login mus alvays be ue). 1b) hats pect sgnicance of is ebeoy being and sconce?Historia eostacountng has alo been cticsed onthe basis oft static element for example with respect to the pratce of suring several diferent money mous assigned to spate ses “The am of vo weights means nothing oles hey ae measured by the sme ele "what then, about te procedure of adding the amount of uh ed y a eompany today tothe amount fen paid 20 yeas ago fo lee of fehl land which the ‘ompary sil hos oay® (Chamber ae fterextiin “The imps one grins on te intemal inconsistency of may ofthe arments pon wiih she fiction of conventional seountng i mode toro irony ‘mite of the undeting philosophy of the ers of Oceania In Geoege Orel [Nowsefght-Rown The dine fete of ths piwophy Is double Dooblehik means the power af holding two eoneadcory bal ih one’ ind slnutaneousy, and acepung beth of them > Chambers ges on o ge some examples of scountng doulehinks Valuation ae incorporated in balance sheet. bathe alae sheet pot valuation Toned atts should be caida cst. in tel ecounts nls sch ost 690 longer meaning ‘Questions have been rise also abou the imprecision of definions in account In terms ofa Poppesan speach to scence, mat of te propositions of conventional sccountng a nt fifiable- Take or esampl, the fllowing isn ofa defi of deprecation Defnionsareunasetable which inpy tht eprecatonfortheyerisamenareent, ‘reed in moancay emo the psa deteoraion win the ear, othe deine itinonengy value wad the yer olde of anything ht scaly ose wn theyear Stcling aks this point ther by tag cha the problem es in heey accountants shave defined the dtemnination of cass and praft ata choir among conventions, ‘whlch ae in ein dion 3 that a present magnitie depends om fare magrtide- For eample, deprecation depends on allcavon, which in turn depends on 3 fture sale (lsposal vale) andthe expected sea lie of he ane. Te same i ee oe roi. Under thi lope eve profit cannot be determined mi he fm has been liquidated "Theories based on historia! cont conventions lead to cautious hypotheses. The Iypodieses therefore are unable to be feud and, as per the flicaionst approach (invwhich 3 hypothesis ot Informative and does hot ado sientife progress if Iie not worded or proposed so that iti sible, Uy ate not useful or Rana ‘decision mbing excepto vey accounting ens. Hence, dey ar uninformative and ‘do not add t0 Inowlege or progres n acounting. The above elcome of hisevial tar etentallycitclas about mesg cent wales and were the foresnner fof the curent move of Intemational Fanci Repoing Standards (IRS) towards Tai value accounting in defence ofthe histo ost system, accountant argue that thereto requlrement that accounting outpas should hve any seman conten (coespondence with caren real-wodld events, asadions, of values) of be subject to flscation rules, They ‘counter by ting the argument thatthe ol of secountng i to alloate he histor ou of resuice usage spans evenie — the matching concept — eo determine the ‘slonsecured from economic atv. la this case assets Tabiliies and equity are issresiduals from this process: they are 9ot meant fo measure or say anything ebout fn value or about the ens nancial sate of affair If we adopt tis allocation Sepia, the definition of depreciation is then in accordance withthe matching ‘onc Although i may besyntac the cost allocadon assumption can conic with formative theo: about how we should acount to prvie information that wef fbr decsion mang The astumption that accountng ould bea measurement es ‘providing afrmation sel for decison making, 4 oda premise asumed by ange gro of counting thers and regulators. ‘The ccm that there are many flat and acepable histo cst allocation systems can be explained within 2 ‘psiive accounting’ raework which males the {Seumpion that accounting information iran ecnomie ood, subject demand and supply for. ‘Under pose approaches to accountng theory development, vey oF ccouning techniques exits becuse diversity is required. hist because diferent accounting techniques are needed to acount fr ilfeent busines sitsations. Fr example, where Fran ate regulated by agencies that allow ter o charge pies any on acos-recorery trois histor coat auld be uefa for maragement counting price sting and for Informing ouside uses of nancial tatemens abou ee Go's ely favre profits and also asa means of infencng pce regulation agencies earing the appropriateness of ther prceaeiing formula. The allocation f costs used for price seting might Involve ecslerated cost recognition, ssc ae diminishing balance deprecation over a ‘hot pesto of ime becuse tis ies high costs and leads thigh rice being st for the fim’s produce However, a slower cost allocalon might beter vet to outside thes the kel fe and value ofthe sets. Agency dear suggest tha the accounting {echnique reglted to minimise dhe costs of contracting wil ofen dies fom station {o stustion, Moreover, diferent plial and rgultory cose afect each fr. Since fnms sek to minimise all out, they wl choot different acounting techniques and [because historia com allocation allows a substantial mmiber of allocation techni, then irs can simpy choose the mos efient echnque [ESE NORMATIVE THEORIES “me 19508 and 1960s sw what has Deen describe as the ‘golden age of notnative {counting tiench, Dering, the pesod, accounting reaches became more Woncened with policy ecommendations and sith what stould be done, caer than teith abating and explaining the curently aceped pracize. Normative theo In this pviod concentrated either on desving tbe ‘tue incom (profit for an accountng piod or on dicing the ype of accounting information which would be useful ‘halang economic decisions. “hue name: Tre income thease concentrated on desing single measure for assis finda unigue (and cones) prof gue However, there was no agreement on what onsite owes ote mensre of value and profit Moch of he Herature ding this petod consisted of academe debate about the mess and demerits of atematie rmessuement systems, Dcn-afuse The decsion-wsefulnes approach assumes thatthe basi objective of ‘counting i oad the decion making procs of certain ‘se’ of accounting fepons brproiding wel, or velevne scounting data: for example to help invesiors (curent thd potental decide wheter to Buy, hold or sel shares One es of usefulness aay Alsaased Is the pochologel pragmatic reaction to data. Others do not idensiy 2 panel rou but argue thal re have these equirerent fr accounting daIn most cases deconuefunets theater of accounting ae based on classical economics concepts of profit and wealth or rational dession making. They vial ‘make adjustments to historical cost measures to account fr inflation of Uke market values of ane They ae, in esence, measurement Hea of ecoubting. Mey ate ormatve in nawre because they make the ellowing assumptions: ‘Secounting shuld bea measurement stm * profit and value canbe measured precisely + Financial accountng i ust for making economic decisions {+ mavet are neice orcan be fooled by “eave sccounans + convendoral accountings inecien [fin a information sens) * there is one unique profit measure “These sumptions were srelyeubisced to any empiial testing hee proponents sully decid thee derived accounting sytem a the Wea. They recommended i ‘0 replace historical ost and prescribe its ws by ll nd sundry Nocative reseatces labelled thei spprosch to theory formulation sient ad, in gonerl, based thir theory an both analy (state) and empisal (induce) ‘prepostons Conceptually the normative theories ofthe 19508 nd 19605 Began with a ntementof the domain ope) and ebjers of acount, Che ssumprions ndeyng {hesjten and deinen fal the key concept The domain of acounting was gene Iwan eaton tothe entre Income statement and balance sheet, not jus specific secon tem sucha acrounting for doubt detoely- Also, i wasin ration toa ‘ies of ancl sateen and ot confined os apeic ner ore grou. “The normative theories made esampsion about te nature ofa rs operations ‘sed on ther observations Detaled and pecs aroounting peinciples and rules and a opis exlaation ofthe accounting outs were ouined. The deductive Famer ‘wast beignous and consistent in te analyse concepts nana stamens sold neon what they say, they should have seanie connections with the re word Although financial saements are absracions and reducions of fem economic fi, since they summarise the sock and the movement of economic resources they ‘should be pragmatic ony tothe ent that they were sutogaes for diet experienc, The pragmatic txts re that when observing nancial semen, sets should act an though they actualy observed the evens the Bnancial statements represened* [Although this methodology hae both syste and sean features, ic elies mail ‘myntatc elaine and therefore hasbeen label hypthetcn deductive 'an important queston in this accounting reseach concems the wsefulness of| cooing dts, Ate tbe quate cata we derive rom gven set o operations based ‘on an overall theory of counting useful to wes of financial statements? To find the {newer what as usually done was tote the opt data of specie acoousing sites nd decmine ether dhs data ped decslon malers make the ht Sana “eins, Thi a direc approach to teing aecountng theory. Figure 2. inate the procedure. Te sows sgl the ouput each model Decision makes we accounting ‘data to make predictions aboot he company. ase these precios, they decile ‘watt do, sh as sll shares in the company ox buy moe. ecouing ‘mstIn scence, this deciion-usefalness approach is refeted ta liber financial ‘narmenaton o ism. The suggestion tht aleratveaecounting systems should be sessed atconng to their predictive ability ian extension of logical positivism and ie termed nsturentlisn’ — that i a theory es no ull excep san instrament for pricion According to Redman, thores cannot be tse Uy she els of thei sseurptions: dey canbe judged only by thee predicve power? There are howevet, {ome problems volved in appying ths test. Fi. i dhe pion is ere, i vers the predicion model ofthe wer, not the scounting aye. Thee ae ofcourse, oh ‘lables beldesacounting data that afletm fnancal predicion. We do ot know precely how the accounting data were used, Second if the desion tums out to be the Fehon, were the decion model, not ihe accountng system, Therefor Isic {overeat ofthe accounting mde! bsed simpy ondesiion making. ‘On the other hand, telom stoner the explanatory role of ecence: in essen prediction in reverse. This methodologlcl point of view stresses the fedback role of| {counting The teal approach to sccouting means that fran accounting theory to be valid ie must be more than an insrumet fr foecasting: x mus also old as 1 description ofthe seal that undebes the accouning phenomena. Accounting, tinder this apprch, gains peeve ably only beaise gves relevant feedback for dexsipive explanation of shat hap occured We can alo question the lial Valdiy of wing pedo (Forestng) a scene et for a accounting theory in 1 dynamic environment where intervening Yaiable cant be controlled. Predision| Instence a moe ald when we en contol vases sucha al pressure hea, weight tnd soon When we cannot contol variables ip the ecanomie environment, such {inflation and interest rts consumer confidence, we have to ates predicons| aticaly,aconding (o how probable is tat the evidence sporting the predision| “The Following anil isa comment on the way accounting theory as evolved, econ accepted a then implemented TFRS isa Big Four gravy tain eich ery ‘ts been annoyed that neatiorl Franca Reporting Sanda are to be used by UK ‘eal eres fT Api 2070 for the proparton of Ue accounts. ‘omnes ne hove wh goes around spgeting tbe public sector i wasting ane gay berate fe lei and done scans o meno mor prone tothe ally ‘Toman lily thane pve eto where have winased waste on be mest colo Sale Bton ths scan en pg and rm gino poles Ange at hase psig ie TPES are completly and ute inapropiat fo use by lea aor. The ean is simply sated RS ar exe pose wt the IASB Cal 'ocson uel information Turton hati reason inthis cae he IAS defines decison ssc oarostion 3 tat needed by an investor to decide vn tabu orl share ina ety. Thy donot coir there tobe anyother aso Terfnancal sporting That wy teenie oso FRS io Rm at nthe previews UK [EAAE: which nan rearing profi to one of eprtng changes in balance sheet vale “sie mono iaee’ UR GAAP ae acral econ a soho march ransactons Inaperodie provide eset whattadhappened intestine real Balance shoes wea ‘dl essen that process, Sos GAAP we aba stewardip, france perfomance, Asivery of value or money, andacton overtimeIFRS onthe cts bai about measuring value at point a ean coping Ht wth sale spose port of time. The serene the eh the peso. So the tlance sheet predomirart an the palit nd los account sacar Bocas it ic ansmed that te veo in the erty il awe ore sl elven sly lesethan a year the UX sock exchange changes han ery wl ors ones yt nom ‘on avrg and is here wholly untested in tenardip,pelormancs ene ie oe ‘rence of results ‘het hel tha the only sve of concen the vestry who they eevee the sole wr of aecourts snag a suck back For dealing, "No le get down some baie fas ee. Noone invests in 2 local auth. hey nora. Tey do notprorde an vest etn With te exceptions an et) the do not eve iu bands to Grane the capil projec. othe wer fhe tac seamen that FS actane oe ar ot pret in the case floc aarti: There aren nestor. And the user which the inane steers hat TFRSastumes to ei, beng the decision 1 buy and el shares, does nt ext inh case of local suri, Thee nahin to buy ads ve alne at hr nest ebioue and ba eve, makes abundantly evista RS isthe sang scouring system fr lca atone (a fr any ungused campy, Ince, lor mc sae enon an absence fay marketable seen Its ware thanthat hag F8 wil ot eqs accounng sears a plc ands ‘etastd rf the spp of Savas, bh of whic are core he wars local Sieostes, And wer tht reo mena siete mane Tle to dle it management es. This means wehave a pte ater on or hans ‘And wove faut tht el iy thet ey dona tne pubic Interest, ater a They area private ena dese by and preted anno small pa, the beet of thet igget specs — who ae te Bit feo accountants, Secon, thre fe have ‘much panenee or “iy awe us mad ote fo he FS tanto or Fi ie ated company, now theyre sling svar sowies othe aconday ratte a afer tat re was voi. So theyve pein te peso! ber fateh thy dominate) to eve LAB ileal “tutions with wl ie the tas work or svelte yee. You can cal it eyes Ifyou tebe atl, fs jit a tare et "watt aly hates when peoples publi soctorisineficiem when the en reason eth the pubis mas Sld 2 completly dd padoct bythe private ese Thats re ‘of most ofthe debacle, for example wil bee ere Someore neue to wake sal the colle an ete tht UK local autores ae bong wld» od reporting ton dened rom he ola tobe unit forthe pecs. THE Projet must be cancelled naw balore ona! Ts not juts waste of money. TNS tC atightoraad com. Tm ary. Ad should al local authority ax payers in he UK We're going to be akon fora ide nless we pts ow Se: Yes rs Rh aye nw ie cre, web Qvestions 4. Nal comments onthe deren tere of ccounng under IRS and UK GAAP. What, {ee irencs and why FS dered napprpate frocl authostet| 2, Gace upan the arguments by Murphy shuld we hve leet accourtingSystans? For locators! Fe ferent count 2 Wat approach Murphy wing wen he aes the quastion of accounting floc tuhostied 4. hy you think IFAS has been adopted for local authors? i scenic or neiceFormative there oftmestent ‘Shares set fora pullback, not new lows {5 Bean a et an, ut fining a get very ners, Ausraian equities are now about {1 ger cet of bear-mare lows. ite he Asta dlr Comedy Indices 0 3k ‘emo bighy while domestic intr ates 349-6 Kn, Taran ball te believer My 2010 ge om the SEPIASK 200 Inxs $500 my sails supporter fhe comedy supr-cce. And the ie Aste tle should et paiy pian aig reenbsck at some sage Oe ne es 18 mont. why nthe wri wena th fei ray be aig itr gh on ques the Avalon dollar sed conmodis. ca stake the feingthat invests hae ead ator in et of a amcor poster. Thi inant her [Poneto shortzrm nate suis ‘Commies nem parle concer |hinkXeat's Mick Dai eaght he ocd on Tweday when he poet the “Tat at hal sccmpanied he rap i etl pice. “Santimenitas bee ving pies, ar then ander” he ward. Fs ao expecting are pragmatic adng of he matic net ate eit saen the lca esrency "qty imei appeat 0 he searching for ap exc ake some poe, Many a il pinching themselves they come totes with hal ean god fertua, Selng peste {tne US sould be the eet xayt reeds iqiation though wt eprting ‘non ebou fo pet une, ome ls tntla 20009 profit econ ould prove added rege ‘Solow shel iver ply thi? Ae volt tums, the make wil ineinbly wong {aot many a5 tore to ed are flog Do yk 1 ake aantage fans tat have crv snc the March fows and lock a Ite avay? Ordo you git your eet) and ie ‘21 any shor tem voli, before te expects oth quarter respon ofthe dominar ‘rata wen Waser path you tke, view any conection aan added pry Jas ramon what we sai ack Mar ore sling rales — rs ie toby ce, She asta fret Rove agi 102,23 ye Questions 1. What ball marks? What a beat maka 2 Why would high commen pices and or esate lp o mainainshare peices? ‘Whats the tery undering the advice to buy te ‘ips? Is ths a noraive Deon? Esplin your ans [SBR Positive THEORIES ‘Dusng the 19705, accounting eheony sir a. move back 19 empirical methodology, ‘which often refered to as positive methalogy. Polvo oe empiric means Neting or relating secouning potheser or theoies bac to experince acs of te real world. Posive accounting tsar Bist Focused on empiiall sting some of {he sumptions made bythe normative accounting thea, For example by wing (quedionzaies and other survey techniques, altos to he usfulnass of diferent ‘xcounting eehriques were detemined. Apia approach was survey the opinions of fnancal analysts bank officers and accountants on the usefulness of diferent fefaton accounting methods In their decsionmaking tasks (sich as predicing bankrupt of deciding whether to buy orl share). Another approach Was to test |the asumed imporance of accounting ouput in the mackesplace. Tess tempted to ‘ltemine wheherinfadon accountng ieressd the information effcieny of share ‘mattets whether prot lan important determinant in shave valuation, whether he esto gathering ne aecouting data ourweighed se benels or whether the ae oF Afferent aceouncingtechnigues feted vale “Totay tbe gear bulk of posive theory i concemed mainly with ‘explaining the rato for curent practice and ‘predicing he foe of aecourting 2nd aoe information in the economic decisions of invgtals, Gems and other panies that onurbute to she operation of the marketplace and the economy. Ths rseach tests theoves that assume that acounung information is an economic and politcal Commodi, and that people actin tei own telintere. Poste scouting then in panicula covers questions such a Do rms subetutesematve way of Emancing ses when the ules governing the accounting for eases changet Which ems are more lly to use stightline deprecation cher than diminishiagbalance depreciation, and ‘why? The theory used wo answer these questions genealy evolves around ‘manage’ Incentives to maxime bonuses based on their companiey profs thir ‘nentves (0 void breaching accountng dased debt covenans and thereby cecucg ‘he com of Sebi, oF thee incentives to use aesounting techniques lo diver senor fom the high prosis i tose profs would atzact public or overament sein and perhaps lead to higher acs. th this ook, aptss 11,12 and 13 focus on dierent ‘pes of postive accounting theories "The main diference beween normative and positve theories is that normative theories are presipive, whereas postive eons are desenptve, explanatory of predictive Normative theories prescibehow people auch a accounanis should behave fo achieve an cutsome tat i jagged to be ight ora, juror aleve 2 Bood futcome. Positive theoie do not prescibe how people (eg, accountants) should behave to achieve an outcome that i judged tobe ‘god Rather, they avoid making ‘alueladen prescriptions. insted, they desaibe how people do behave (regardless of Winther iis "ght; they explain why people behave a certain manner for exrmple {o achieve sine objecve such 28 saimising share vals oc thet pesonal wealth (Gegardless of whether that sight’ or they predict what people have done or will do (gain regarien of whether that eight or hex behaviour). ‘Many postive theory racatcers are ligely dismissive of normative viewpoint. Similar, many nomative eons do ol aceept the value of positive accounting research In fe, the theories can coexist. and can complement each other. Poskive 'sccounting theory can help provide an understanding ofthe roe of accounting whieh {nt can fom the bass for developing normative theories o improve te pace ot sccounting [EH DIFFERENT PERSPECTIVES “To this point we have focus on what may be considered tobe a highly structured approach to tear formulation ~ the scenic approach. We tar with a thery based fon prior lnowiedge or aeepted ‘iene’ theory consuuaions. When we observe ‘eat world behaviour tat doesnot concur withthe theory, we west that ancrmaly 253 ‘esearch Sue and express it as a esearch problem tobe explained, We develop aeony to explain the cbsewed behaviour and use dat theory to generate tesable hypotheses that wil be comrborted ont fhe theory hod. We then fllow precise and highly uctied ox predetermined procedures fr daa collection and afer subjecting he da (sally) o mathematical of aastcal echnigues, we validate or refute the hypotheses‘este, This approach hat a ierent assumption thatthe word to be researched san thjective reality expabe of examination in ems of lage sale average statistic, Tis typeof research it exted out by incremental Hypotheses which ate then combined 1 provide greater undestanding o beter prediaons, of accounting, The Implied sssumption is that a good theory holds under eucumstances that ate constant aos Brn induse and te “This approach to research is genelly described asthe “scientific approach and the approach eunenly used by most researches in accounting and the approach that, is published in most major academic acnunting journals. 1s inponant o not hat ics based on cenan ontological astumptons (the way we view the word, which Imply differen eplstemelogls (ie way we gather knowledge, or lear) and fren research methods Thiy i ar, flere the pes of eestach problems posed end ‘he hypothres that are toed Ie mponant for accounting erarche. to dealy _ecognle the aesumptlons undetyng te research and (o consider whether aerate reseach approaches are more appropiate, Thee a body of tert, loosely Iabelled ‘nual research, which i erin ofthe highly sited approach adopted by ‘Scientific researchers. We ily review some of ther crt in this section. Most seserchers now acept thatthe mos apvoptate appioach depends on the nature of the esearch queston being concer “Theis crtism ofthe scientfc method ital lagescleaistical research ens to Jump eveything ogee. Hypotheses based on te use of stock mavke prces o° sues render much of asounting earch remot rom the world of practiiones. Also, they ae not commensurate withthe concens of many individual aecountans in thet oles st accountant, Some reechere advocate the naturalist reseech foc 35 being more ppp for gaining knowledge of courting beuviourin natural sein Tees |Sthatwe undertake sare as naturally spose This appoac has tw impleons ast we do aot have any preconceived sumptions o heals. Second. we focus On| fim-spectc problems. This done by taking» lel research approach using coe observations ad placing less emphasis on mathemati analysis modeling statisti ‘et sures and nberatery est Te usual way to undertake naturalistic research st we Individual ese studies and move detaledfeldwor, Ths ype of research is much more ‘mic in i perpetve Beem nme at lrg indvual pobln which may be Aaespeie Tetfore results may bemore dict generalise. “The naturale approach can be compared with ‘scendiic accounting resarch shih s more prone to aggepating the rel om esting a number of hyposeses Seder to form ‘general theories of scoundng. Naturalistic research sans fom specie ‘ea-ver stustons the main intention ito anewer the qurston Waat i 9g 08 her, not to provide generalsble conditions for wide segments of Soi “The cateaady approach i acen by some reaches ae best fling the role of plonng or cysullising the research problem for naturalistic esach, Fr example here not aie develop theoretical mol pis wo epic obeeraon, ‘he neat beat slteative (an emplortry speach) maybe followed “Tomkins and Groves diagee with this viewpoint They ase the matric rezearch approach a being more appropriate o difeen:ontlogal essorptions Diferences in ontelogical assumptions imply diferent esearch sves and influence the research questions asked and investigated. For eample we may vew accountng ‘ecial consiucton. We may wish to undestand what se-images people hold ‘what undatyng assumptions suman that vew, oF what par tls peeepion plays fonuolling the way they perform ther eve role. These are the types of queso that mihtbe researched using subjacive ontelgyPlamen rererreenn ‘To farther explain ontology and the difzen research sles which may be used, we consider the ane by Tomkint and Grows!” and the Morgan ad Smicich "Sesion they used, Fir, they lit a sway clasfeation ofthe mate ofthe soa ‘wold (ee bie 1), “Categorie 1-6 at alternative ways of looking a he world. Category 1 ess, objectvisvewpoint of the word here behaviour will vay conform toa set of behavioural mls, and outcomes of deasions and actions are highly predicable. In ‘elation to category for expt teseatcher assume hat all manages a © anise ‘hei personal wealth and that they are aware of how they can use acountingweehnigus to doo (eg by incessing reported earings, thereby increasing their bonuses that ae ‘Se torent earings enables vsearcher to pedir what secounting methods manage wil ef ecounting choice ix wnegulate, Researchers wl predic that all ‘managtstehave inthe same manner becuse they haven shared iew af the wold and | {he outcome of teractions, and becuse they sate preferences for parla outcomes ‘When reenter view the world a concrete steutie (category 1, ths enables them to use the scenic approseh and satistial methods to text thelr predictions. The Scent apptoah is appropriate where the behavieu investigated is predicted to occur _ytemataly aecoeingto soda of bdhaviourand event Asngion Rely sa oncie siacre Raat ase conte pros Rea ea omen ad of eosin Rely as symbole ascouse Rea esp conection Realty 5 projection a ama negation 7. Co the ny aura ac caning ey cami ‘As we move down through the calegories we ae graduslyreatng cu assumptions about che coneetenesof the world: category 1 assumes thatthe world ls cope nd sable, cepory 6 views the wold ss unstable and fman-pecf In caepory 6 Inumans ae nt expected o behave aeconding ost of behavioral rules hat apo} (0 very equi Complex intenelatonshipe snd individualistic decision model ae [ssumed inva ae 9 expeted to think alle, Recae individual x expected in entgor 6, the scentife method and sasial tess ate inappropriate because tet {tsumption st late, Although incvidls may behave atonal according wo thie ‘penonal understanding ofthe word and of te otcomes of pantclaractons, they 8 aot ‘ares common undersanding ofhow the wodd werk and they have diferentprefered {outcomes fom their decisions For example some manages might prefer to mise the personal weal oes might rete to maximise thei subordinates job saison: and others might refer to minimise their personal work eff Understanding decison ‘making involves understanding individ perceptions and preference. For aagois 1-3 tis more appropriate to use the stentfc approach By aporopriae ‘observation and measurement is assumed that one has ea availabe, stable and ‘osmily very simple fonction lating to woated and small substs ofthe socal werd thar can be used for accurate predictions For eateories 4-6, Tomldns and Groves suggest thot naturalist or exploratory research is more appropriate, Thee thee categories ae generally labeled a symbolic ietsInterstone. Symbolic ineratones se their world as oe in which people frm thie ‘wn spate impressions trough a proces of human inaction and nepoiaton. Thy believe hat socal action and interaction is possible ony through exchange of shared Inerpretation of label atached to people thing and stations Realy snot eno ‘nthe ulerof merpreaionthemseles, bt ely inthe meanings that rel om people's imerpitaion ofthe stuatlons and evens they experience, A Scent approach 1 ‘sachin the inespretaons people make might clacidte auch ules thoxgh lugar, ‘titel search in thon rear where meanings hel by individ ight be assumed 1 [etal conta the naturalist would esearch the problem by placing emphasis on fecling ne’ way Inside the experience ofthe ator in order to gain an understanding of| sheprebler. This proces might deny manysgieant frm of socal beaviou which ‘mot be elated to few well specified variables wth stable meanings, but which sult fiom the natu oftheinteaaionsamong 3 rox of peop 'h we hve previously noted the on‘logal assumption we make implies diferent pstemologal pprouche ad cen esetch methods Thin tar infoeners he ps ‘of search problems asked nd the typothees that se tte, To elp you understand {hig we present comparison fhe sceniicand naturalistic approachesin ble 22 ss ‘Sct eee alata research “Gwoiogeat” = telly obesive snd cera [+ Rely i sic comic and Sstumpions 2 Accuiingeabjoaive realty |” prose hun nageaton. “ fC momneneenerett | Aezaning contd iy. Fpitameloial + eicamelavanccner of aie prance” knowfege 1 Elles ofthe wor canot be icone She by econ | Teagan hypotane . [F Seetgatinmenttan ivehadoogy | + cued |: Froth {imple valion eons yates omultion Epi ndeton tor Iypodeses + Rte we + Unarcned 1 Nopwer meer 1 Tipton by fbi 1 apeence of eves | Aproprte satta mitheds In the following aril as a farther itustzation of tferent perspectives on secounting sneory formation, exacts fom ‘Financial aecounuag” an epistemological research ‘now (Schie, Boba, Dab i Mca 2007) provide an overview ef aexountng theory ‘erelopment snd the author’ view onthe development of acounting thers Financial accounting: an epistemological research note ly Eduard Schl, ost Alonso Bob, and Fran Dake Marci ‘What account antag haw th imple bse question as ever boen arsed Precely iam, 1986, A simple and widely eld concapt of accountng isthe process of [dering measuring rcoréng, and commuricaing ecoremic inirmaton about a ‘rman so bat nay be used fer sound decionmaling THs concept was ceive {fom Will (976) and lke oer concer of secounng erphasins thespian |ecto accounting owed. Viewing this definition fem an epistemological perspective ‘oe might argue the tbe bjt of study nt well cies te aodegy eas ke ‘Sooticante, andthe purpore of accountng esearch spot ante Thea ote ‘document not octets specie defo, bt 0 mgt ae of te icles ‘undentanding securing a= siete iping rein dlsion a sain oe ‘irate. Among obs the mparance of wewing accountng 262s le ‘undemerl or appl researc s the only way To genera and improve knowledge in| ‘nti enor words, he leaner and meres Fr, condacing sec “Specie dace te accounting depand onthe extent to which specie method ray be ppl toimorove the duciplne's boa of nore Following th line of reaeoning, ve Ecave that in ere to pene and spprecnte accounting a Sli ele esntal ap would tet understand Be dsoncons Spd suotinons between secouning themy and accounting prota. Aceon to the {ram propzed by Kan {1973 or example, we may conjecture at aceouring {hear ta boy of sates or prpossonscannacied by ues of ier seni {be tebe rypoeses or promises an conclaon| term the geneal Fae of erence {ore development or explanation of sceauning procs. Te sy by Henriksen (982) ‘conobonste harmon. adding hat occaurng theory mey be dline asia reasoning inthe form of tf bead pines hat (0) provide gene fame of elerencey which accounting practice can oe evalated nd (2) uidethe developmen of ew pacce and procedures ‘According to tesa pncpes, we arg Hat the px scp in percing acouting 3 sete el woul botany he secouring tears tf being developed a how ‘hey ae verted. nh expe, Poppe (1982 ugg tat secoutng knowlege 9 boy ‘Sl mormatve and postive empl teas but around nce nerens "Nomatve meas hat acecuntng hears contin inperave value udgments toning fromfacil satement sos hn bjt of ty, heart ale am equty. Ana jutieaen tha pamatwe conclusions atevary ote eign of pole recordation, ‘shih may or may nol be adap by practioner inthe Fel. Accovig to Wats & “Zimerman (1986), armatve theories ae aos ently dosed othe exaviration of ‘Gantons "what ght be dona” Ths hs theory apt prescribe what maton ‘Sugita be commanated and how it ugh to be peso In ter words, the narnatve ‘hears stempttoceplan et accounting "should berate what scountng "| “On the ter hand, portve here taro npn why accounng what it. Thy etre nat ony wha ccouning infomation sul apd Now should be communicated {ot we, bu aso why accountants do hat thay do and the fet of al ison pene Sn snc utiiaton (Chesteran, 1983). Howene, suggested by Schroeder an Co {oom ial thre shouldbe no sich dsincion morstive ner pote aur wal ‘develope and compete theory encompasses bath wha shold be and what is. The eval and indotive stibutes of accountng ther ae eas o justi In act according to String (1970) only mathemati ard loge canbe esi as nore ‘ience,Aecouning theories partir are Tunney based on experience and ‘izerton For example qualaive and quate variations of im equty sted fn Financ Aecounting the ction! behaviors of Budgetary conve vested in Managoment Accounting omever, accounting premises and conclusions ae connected by indie inerence Doubie-onty bostkeping stem can seve a ilusate this pont The douse ser [Ebasadon toting changer nthe welts ofr and a atempt owas he qualia: Sd quanavevarairs inthe fn ey. The doula sytem, perhaps He st Shi oat important paradigm” of crouning sence, wa Inver nthe eo {tie of makers aly n espns othe emergnes of wade and earmare, Accorng ‘omer (0930hedstieety was or when pepe cae eta you cal a ke feieting ou of oe plgeonole whut puting into sehr hus emerged 2 maral ‘utome ofthe evolurary procs the need of mes am, 1986) The st polished a ‘ouarTeR 2 Accouming ten comtucion 39 stday accountng work wae writen in 1494 hy the Venetian monk Les Pail (1480-1520). arcs that have versie eset changed to ey Sabsoqeet wos writen in the 16h cost induced the fist formulas ofthe concep of ase, lables, ad ncore to keping we hs me, Lalas (1978 sess that thoy is eonraces by boy a anceps From hs penpative, a, abit, income nl oer nats dived am these such ae long and shot tom, even, co, ‘exponss, epeatonal, no operon, ec. Rave a pee or ater parla) meaning in the ccouting fel, and are undamertl amet forth bldg and undestandg of [ccoining knowledge Inthe same ine of inking, Ste tay by Gir apd Urcerdo {toon gpa ta ne conc of Franca secoting se pale rican tote ‘velopment of accouring Ten wo Was (0) they ave themlves pat of an empiri graces for developing rues of Eanes ecbuting ard (2) they hence of itunes which shape the hoop accounting, ina pen and socal enone. Much ater the nda Revoton ove he nee for acount practices that could ane mecrizton stay. maniac operations, en themass eduction of gos dnd secs, Wit thee of lage, pully bald esis corporations owed by abseice Socholdes and scminisrated by profersonal managers, the scousig ole was father redefine, Aceordng to Scoroeder, lak and Chey 2005) he nus Revlon brought theres moval accootingrocedresand anda ners ofepiserolgy these ‘io veneered at rise Kany 1972) aecauingslonce, Organon’ ‘rot mee! a esol apd economic ely, New paradigm mee imposed oto Imanagemen aces alin for new seca coves lo Supper tha new Secure frac Fe at pont on exo othe accounting fl pt of rt two drectons Faris! scent and management sceouning, ‘ile the ot asses on the otide wr of secounting fort, th econd focuses nthe neal use andthe decison making poet. However, idependeily ofthis ps theorists canioue tis ques expan account pac, ne pet secon we dics Ihe Durst, evolution ae method of fascial eeouningreseeh The sociological and discursive perspectives of accounting ‘The tues by (ato 1909) snd Whiley 1988) see hat Be sociological ard Bscursive onpecves ofa scence artscally determined byte exten and erty of reaction Sit oc Like wey sar socal ene, secountng conduc rset based upon “Sunpont alow thereof sol scence and th aur of society liso, 1997) As happens, nani! sceuning may be anlyed tom bth te soli! and cute ‘penpecves Ts ceouing ay be viewed se oco-sstemic™ stirs, ah pl, fro, and outa The ies Is that fiance knowledge st fet ny {he aceounans and accouting practices tt ah (deco Wiech) Impacs the ‘management concn al isramiatns. As Beaver (198) sugges the cent nancial tepotenironment conse of avium group. Gwe, eormaton narod, ‘ulate, manages, audios cc) whoar feted by andhave sake in frei epg fequteren Heer, te ocalogis snd dune pempacts of accoing il Be SMlvecd ied bythe song imesigendence tween selene and sciy Ue since “players Our argument fat an applied since, the scouting asiline ro ‘rcepion tothe len his sense, he proces of constctng accouningtheorshas been Stayz, clmnsingltheconelision tat rare pres, avs instal vee, Imamgement von nosis, ac macronconore aces suchas nation ate ben pus tb stoogel accountng sytem, Thee np are the song pts fr an acco "arlton proces Thur the decrve ret the cretion ar improvement of ae=08 Practces hie the socolglconixtion the covet ncorperation a hese aspects Fe ccouningtamenorktoades ser nade ands a eapetion modes. eee the acconting wove Is epresenedhy baer sseants of es ana athby isto and takeholdes and improved deonraling by manages. Thu, elton 22m ooring som might be iw scl ey, re bg nose srl ermine waco fs tad led ns ruber counties Sch {Unite Stor here atl oporing iran ir ed pany toward ie node Inver an Cen deci alas ct overig coronas oy (Moor, Gemon and Weck, 1896 Hower in se oer counties sh el sae aa ‘mar county, an acon ag pay ocr ate ii sno Facials ins se, atoning aos he enecoeral feceta whch ‘Tepes Ath soe ie, use earch acc tans bee enced Social andentonmenal ores, which ested in two fer ean esearch te Noa ‘Retean snd he Cropean. coring Lege and Maes 200) teach in acotng Cannot be onsen fe sol sateen ens seo. Te ‘mech ele aproicof esol envtenment The Nar American tea cc ‘snr, which nknown a maior fs been sed onthe economic concep and ‘Tammor ne ont pntive mtd ehh base eer on { hyptrse developer (i) sora toro uppe he pes Ai) empiical es ing econometisecniques {) cancleans hat wi fo cont tery nod expan and rest partie "is tn of researdh hasbeen tng seid by the ie Schoo (hag, MT, Rother, Stor tan tr Pb progr Thich hs lo been sey ‘rene sei joural ie The Accouning Review (AR, ourlof Accounting esearch [in outa counting ances (A), Coneporay Research (CAR) an Ree Acouang Ste 6). Hower an alse eam ec ha eroged wth ‘fetcnn ofthe joa ccoutng Craton and Say, England ae we call ‘tne ropa Bt see, smo othe eather were gay Bh ie Any Hepwood Mics! Pover and Petr lr, owes, we might nte he exten of rsh ‘ho thst adoro -Neh aan appre and eer, “Te theres! approach wsed by the Biih sean of vse has bean based on lites ie scat, psychology sor and pata! economy nt of esearch, ‘he accounting phenomenon eannl be vewed wah the bert posible oon arma) ‘rast of pots oe ested poster end the proposes that exes at stope ‘Sccouing shuld be cabosted win a tof il acon tha tna debate sent tepes nd Maris, 205) ral marks Ths bref epstemclogcal overview of the stay of financial sccouming eee manstes hw tganed tnpotance a atandon avy ole the aceuntng t Srived the sate, Corstucly, accountng practces ware shaped hy Secoung ection ad the goverment sth, whic ook 3 keen ite the potion (rapt markt and cedtore The exp ae tl wie rong influence over he facilogicl and deutve tranches of Fann aceon sien. Resares programs ve bee sapere by reltory baie such a AICPA (USA) and CICA (Cada and ‘rofessionalsecrtingssacltions sich ax AAA (USAI and CAAA (Cada, Financ ccouning researches ao been paced by te crpraveifunce, Ths func fas taen the fom of Standards dasigned to cone fanctalacceuming practices insead of ‘ering samotn o the anomalies been the ety and esha of em egy AS 3 consequence fw padi or accounting thors have ben pat forward gigs each Sreniesin incl acrouning, When Poe Accounting Theory bought io secon, 1 theoy-tstingsppouc, esechee erbarced onan eficlentcapal market Sppoach “ahich edo proved usin oligos ete maha a ttt sols These ‘aor muy have sbided finan accourng fem erticisn, and terre creat, ‘compared her tansgenarsdchling, her there wae more inca fo uit Sh insprsive ivepton Al the sn tie rece sccountng anda volang highly CCHMPHERD Aecmtng er cesaeion 38own omparations have alta quttons aost Fanci! report elit, whlch seem te thwvel show sited the focus bak to regulation ft cel reso fe infomaton Utne none recover the ing of accusing ilomaton As sch, esate In'inanlstaccoting oud tobe svar of the many Sereno rales at ey be aterptng to "aceurt for” and represent. Numa Ascounting Highlights sip ‘of eganzation! realy tat re quantile and lt ino tbe scouring Famewor, but ‘hermes gnre spt fcgnvzatoal elit tht arene anna Uns way. That ‘Si sich challenger ae pt and parcel fall cet fl. Sieswewirenesng were Meron of ne Sak sor omnia GAA Ge et References eave WF Raper anc, de rie al 1998. Sallaou, Ace Thay Se Deven Pes 1898. Gen, C (1983), The Mtbodeloy of Poskive Accounting The Acting Ra, 8, se Reover Chaco ooleepog befor Pail ening Rv, 46,1938, ‘lau Ms Undedown Boing Phy ond sie the. Pima Pblaking 194 Hendrie, Aung They hn Rha D ean, p 389" ap KV Acting Ta 2n ed Wy 1986, 8, The re of See Rowton, 1 ed Chic: Unset Cig Pest alain The Methlogyof ce Reseach Pegumines he Mal of See un amas Poni ie, Came Cn Unenty Pes. Latur 8 La scence est, acs a ti dete Danes 7-96, 1989 Lopes A MARTINS, Ea Cabana to As, 2008. ‘oc, Gs Gerson, Mek Aun natin Pee nn Eos, 1998 "opp ene tn aes ens a eee Pas ‘Sweet Rl cc Thy: sand edn St We In 195, ‘Seon Ry Cake M. Cathey ral sting hoya Ant ead righ e Wil ne 2005 ‘Sting On Tea Cnstcton and Vestn. The Asn a 9. 4-487, ay ‘ac RL: Zimmerman, oie Acouning Tat. Bgewood Ci ew ee Price Mall ine ps chap In 12-1386 ‘walla Revo in Aceuning Thught The Aang Rs, 51 471-882 fly “vie The Orme Sewcreof Sofi Pa. Th lca! nl Sei Organon of ‘bene Ont, Caren MOS. 153-218 1986 Questions 1.Oiine a last bo tories mained above and descbe the oncologic and pitemolagea!asumpone made in eae eo.2, What do the authors mein wen thy sty acouning thats cetan imperative value Juggerene 2 Wy ae accountng eres aout social chokes How does acouning alc saci? on wal you go abt reventching sot pac? [GIE+ SCIENTIFIC APPROACH APPLIED TO ACCOUNTING Misconceptions of purpose | ret del of misunderstanding eit shout the atempt to apply scenic approach fo aceounting, Some believe thatthe aterpt i to make sdentst ou af accountng Drath lew ls not the alm ofthe approach. scene one who uses {he scenic method and. therfore i mainly a teseacher. The metic profession provides good analogy ofthe diflerence Between researcher and praitione abd the {ie and elle of the scene method ‘The medical researcher is scent, but the medical practioner (the decor) ‘ot The lateralis the toot of medicine. He shes a professional person who ‘pected tue dgemen to diagnose dieses ad recommend treatments he tole the doctor applies consi sninly of knowledge gunsd trough scenic research by ‘medical invertors ut asin many othe elds scenic sere has n0t fund all ‘he answers to meciel quesions and sme ofthe concusons are nol 38 pesiave at others. The conclusions of esearch are generalisations but the practioner is faced ‘vith pec eases that may not conform exaly with genesl conclusions. For these reson the practioner judgement is always aecesary in applying the ‘teal of his or her ade, What sgncan thatthe practioner aks 2 sente tude in pracice — that b he or she takes seriously the view that evidence 10 ‘hippo dlgnosi or teatment important. Aczouatans wn bale ina scene Spproach want empinal evidence and logieal cxpnnation to suppor accounting Drsclces 20 that practioner an recommend the mes appropriate methods fo ive ‘Siuations bared on this evidence People fd statement moze convincing When ‘Substanated by objective, empital evidence than statements based only on debatable ‘avonaliswons, ‘Another common minundestanding sbout de application ofthe scenic view ia accoursing ethat abate nah fdas, which of couse snot possible Teter. those who agus agains the centfe approsch to theory fonnulaon contend that 1 ess to see hat which Is imposle. Such a argument is based on the ‘misconerption that scence discovers abolute guth. The scenic method is not Perfect Ii a human invention to hep ur avenain whether a satement should be onsen seals or at The urucure of the proces in which this determination made rroch that no one can ai abalute uth in since. Thus, seine uh is Provisional. A satement or theory guns the status of onfirmaton only afer scents [the ate fom which the theory evolves decide tht the evidence is suficinty perstasve, for example, when satis tes show thatthe resus obtained have les than a 5 percent probablityof occuring by chance. The soy of sence discloses that substtudons adjusimeas and medifations of theories are made inthe Hight of now evidence — iisAltentive approaches to accounting theory constuction Predicting profits fs erystal-ball gazing, by Narle Hoper and ona Bun) Cole Myer che executive John Fletcher prev ste-year annual pom owt ge Inte company’s inital eval plan, gat the advice fs os. ‘the downsie isk of sharing tt externally was at you gt half way hough i ard pope can chek you slong the way and f youre nt aevering the prs ges ul Up, [Rad's sing gets pal of sadden hes out of jb Fee ad "ihe fve eat ting clase 303 er wel be gong tough at. we deftly wot be shrig any ares again ve dane tht one ld do’ ned that om ‘Rade k ofSing tht wie whe re an wan ak "Wile Me Fletcher's experince ie been mar ing than est, al cle executives sc lowing bs lee by pulling back o making spect projections about earings. ‘epaual Trstecs anounced 427 per a an 2004.05 earings but chi ence David evel dred fst al guidance url te annual mecingin Octobe. By convas. tthe sam te ast yay, he sd the company expected improvement in pening grote tx in ences of 10 per cr subject o market coors ahistie as yar, we though we woul exceed 10 per canines in operating prt str tx and we ened op elven 27 per cant So OU ew that wasn very Pp {Bldance ad Popes Foote chanel oie Jobe Nei "Sth yer our vw wast wai le whi ntl ings ta ad give more appropste _uldnce athe ACM thik hats consent with he percelved wend ithe mart Pot Be guidance because ofthe ges nce ‘Sankar Narayan the CFO af ohn Fax Mellings— pblher of The Auta Financ ev sald the conpny’s practice ms give general drectonl guidance followed by Ihuch move pec gutlance ltr nthe oar when averting dead war me isle Me Noroyan agod that ter companies hd been ty genera in th guidance this ‘eporig periods speculsted tat maybe beease af the econeicenrennen Pcie Brands investor relations execuve Katherine Cacper sald the company had ecided asin providing space pudanee. "The pobier wih uiance the marl 50 Sssceptbl to expectations tht teh if you exceed your an frcass bu the market His ‘omathing feet you can be ated down he si ‘ther compan such a¢ BHP Ellon, IAG aod Rio Tito continue t provide baad cick strents bt ot pee po forest “i you can el ws what he Auatalian dolar int be at the end of the year and af cn’ vara we ll yo hat wee going to mae, thinks a spe as that! Rl Sposesman an Head sd AC invsorrelatons chi Ane Drs adhe ewer never provided otitxeas, npr aca lange uty ponoko made the geo urpeciae "Peo ae’ vey goed a presiig what te mat wl dosh added Questions 1 hot market backlash do usnenpepe they donot met he orca amings or ‘pow agate Wy? 2 Mr fecher dsrbes how he ht red nt to bly dsclse 5-year annual prot roth gt xan hat ly to have ase hin to lar tat son. cing TStheconeuion what anpratch otheory conse has Mr Flaher ppied Expy yor enowet PART Aco sy2. Can the ace aporoach wo theory constuction ad asin be usin elation 0 Predicting when ar wires wil east erngeanmcuncimrts Why why st «4 Wat isthe Inponance soeety of developing shor fo expan the realsp eevee earings fect range anpeuncena Std share pce everest | Allerative appreacheso accounting theory consracton Felsira retains forecast for 2009 ear yan Tan “Tela Cop, Austral’ gest phone company, ened is forecast for earings andsaesto limb hsyearon growth rom mob anders nts athe lol anal ea. | vvnge bre interes tn deci and aartean il probably ae 35mch a8 2 pce 12 monic eing une 30, Tests mi ayn stereo te sal _Adscexchange Slayer may clin Between 3 percent and perere company si Tere, tated in Melbourne tuck to is forecasts even 25 the cel eis forces some ompantso cut caings etre, The phone operator the years in a ven plan totals proty slshng ts waster by Sa ache 1,000 and ha i wl inven mae than A840 lion lon o upgrade the pend an geographic coverage of neon to count lag revenue ine perio Unlike mast compass st hs tine, Tala Yo an enable postion” Che Executve ‘ofter So jl ld inves Syey today. "You ean take to de bank hat wee ig to gow easing” ‘Bobilephane uni sales roe by “doug perceagein the scl is quar ended Sept 30, he si oir, wich hs ext 9564 jbs since anounced 5 fveyear plan, epee save ‘ewe 5200 lion an A8300 rilion in labor cove by June 2010, Chit Franca (Ofcom tarope sid The phone aprte had 45,549 rks tthe eof one 3, according it anna repo Suc 2008 Sunless ed wh pemision TNAGION | igs lo } Questions 1 wat act cae do banepeople i they donate tha eect caning rowing hy? 2. Can the scent aproach wo theory constuction and tesing be us n elation to Deccig wen nd ow me i ac ei sancti 2. What i the importance to sity of developing. 8 teary wo explain the elaionsip| Datwoun eninge recat enmngesmaeuncement, snd sare pce movers? [BL ISSUES FOR AUDITING THEORY CONSTRUCTION As discussed eater ating ta werifation proces tats appli to the accounting Inputs and procter Auditors are not verifying outputs for conformance to one Unig economie menace of profi, but provide an opinion on whether the nana fntements are in accordance seh the applicable reporting famework. In addon, ‘depending onthe jriiction, autor: provide an opinion on whether the satemens| resent fay, in all material eapecs or ie ue afr viewIn genera the construction ofa theory of auting has followed, with ala, the development of acountng theory. The early Urata on auditing faused on ses ting in the conduct ofan audit such 3s Ue empha 0a aud detection, discovery ‘ot etors of rine andthe nate of account verifeation, The prawn approach {o ausiting theory development is eldent nearly tex explaining the proces and principles of aditig. Fr example the concept of professional scepticism ha it oot In principles aid done nineteenth ery eal ns, such as Kingston Coton Sl! (Gn 1896) and London and Genel Bale” (in 1895) The jagement of Lopes L in the Kingston Coton Mil case defined the audios esponsibilis with respect vo the ‘etection of aud asthe ght to belive company represenaive, provided reasonable ‘re i tken, Freres in vious jursdetions refined 20d developed the concept ‘of profesional spicy andthe auditing xandards have adapted and developed ‘ver time to corporate ths concep, Today's standards sl eer fo the auditor ght to seep ecrde and documents a ping, povided dhe aor sess Farther it any condition rests doubt about that presumption.” ‘Mautaand Sharan 963, attempted o generale the eating Iteraure and provide 1 comprehensive theory of slit” Tels motivation zo write the monograph was to counter the prevling view that ating was a pata exercise, not only without fny theoretic underpinnings, but not eeguting thoreicl development” Mau ‘nu Shara argued tat prac ase coud be revolved only by development and we of theory. They provided ight postulates a «foundation forthe theory of auditing fn developed the basi concept of uch 9 theory. These concepts were dented 35 fidence due audit cae faipresentation, independence and ethics conduct. Howeves, ough thes concepts are now embedded inthe adiing standards and regulations the development ofan auditing theory progressed slowly in the yer following Mat and Shas pubicalon = “The normative er of scountng theory and esearch als coneied witha normative sprout to aiing theory, In the early 1970¢ the American Accounting Assocation (AAs) exablshed the Commitee Bisle Aung Concepts to investigate the ree nd function of auditing to make recommendations for reateh projets, eamine the probleme of evidene, and ieue a postion paper on the scope of auditing by ‘countants”> The report provides + normative satemeat on auditing, with 2m {mphasis on concepts tat shoul be sade by sade, and sgestions for seach whlch may ead to beter Falbimen ofthe role of auditing in society "The resting Satement of laricAudting Concept (ASOBAC) emphasised the essence of auditing ‘the cllacting and esisting of evidence without fly developing te theory of how vientary material is sed inthe reasoning process to support he auditors opinion + “Te guowth of pole theories of accountng in the 1970s was accompanied by a change in dietion of suiting research. Two major sueams of research developed, both of which reid on empitcal data and were designed In a posive or scenic femework. Experimentalie focused on 4 mic-evel undertanding of the audit ‘eating dgement process (known a8 JDM, oF dgementecsion making research) “This rexeareh sought explain how audits make judgements and decisions so that they could prec how suitors would behave when placed in cenain situations. “The cay research inthe eld provided somewhat disturbing exidence of dieing Judgements by auditors when presented with the sme information ® although these ‘fies appeared at east pay due to the problem of eating realistic audit tsk nat ‘permeating "The olher major steam of esi audting research that developed in this er examined querons of suitor choice by companies and the tvs afecing te levelof fees pad by companies to thei auditor This research was pari incest in| ehother the uals of audits pevformed by difeeat audor in dierent reumstances “itered. DeAngelo® agued that audit qual ls poiely related to audit im sie because lager audios have ‘more wo Lie’ by flag to report a dacoered beach Ina Panic cent’ records That x age ai na ave more lens (ofose than sal [ud rms fom compromising thee independence on an audit inorder to please the len This theory helps explain why lage audit Sms dominate the uit serves rare. Smanic™ developed 3 thecry to explain that aud fes are bend on len ‘harass and elected the forces of derare and supply. This erature is Based on Economic concepts of efclent markets and the roe ofthe nidtr in rsclving agency Conllicls between shareholders, manages and lenders, These Uhetes are discard famberin Iter chapters1 review of acounting theory constraction reveals that chee are many diferent Spproachesw theory formulation in secountng, Ths chapter lasifes and explains ome of thee approaches Wheres the previous chapter focuses on theory in gener this chapter exende that dicusson to Tocus on theory consmuction in relation to secountng, How pragmatic approaches to theory development apply to accounting ‘Accounting war dominnted by descrpive pragmatic approaches to teary development Se synaceexplanadone of pragmatic elatioships before the late 1950s. Pragmatic Spproaches ate inductive approaches designed t lean fom what accountants do {Gescipsve pragmatic approach) or how wess respond 10 accountng formation teal pga pnt ones ne oning poses an prin Citcs that have been levelled at historical cost accountng 283 theoretial model Piso on acounting hasbeen citibed fora numberof estons some of which ae {plod in ates chapters nts hapter we explored why ediional Nistor cost has bean eile for poorayetax whesby diferent ype ofmonetary measures are ade, fd for seman deficiencies since there i no independent empirically observable onespondent o concepts such sof raet. In tr chapes we explore whether ‘lteative accounting theories compensate for these deficiencies, [Normative tue income theories andthe decsion-useulnessapprosch seznunting theory ‘The 1950s and 1960s saw accounting theory formulated using a normative approach 1 Drscibe how accountants should report ether to decive the “rue Socome for an ‘rasan oto generate information hat ust for decisionmaking, “True come” theorists concenated on deriving = single, cortex measure of income, Howevet, "Wve Income’ bu concep ha wat mere defined to the atisactin of all panes. Deciion- tufts approaches false on developing tense to enste that accounting repos Srould provide the information most seul for making the dedsions that the theorists Dalee 0 be most impontan. This prod saw accountng theory develop most i ‘elation to measurement theories of value and adjustments to take into account how ination fected values Nonmative theorist led most on sta logic in deriving ‘theories and concentrated on measurement 162 paar coup hearTEDIEI stow postive tere ae constiacted From the early 1970s accounting theory beame more involved in empidst positive theory development and testing. Positive acountng theotits concenuate fn undestanding the assumptions that ormalive theo take for granted. lie houmatve thevies, which prescibe parlor coutes of scion. pose theres ease, explain ot predict Sbeenable phenomena sack a why aetutans do whe ‘they do and what isthe impact of hora cost aecounting on capt marks, Pose ‘thesis sat when anomalies oexstng theory are observed, and teserchers develop theories to caplain thowe anomalies and then text them, generally using he selene Induce approach to theory construction and evaluation. Alternative naturalistic approaches andthe importance of ontology Tn contrast 1 the nonmative ad Induce approaches t theery formulation and testing the naturals approach more an exporter approach that does notte ph to dra lagesate inferences, but rather ies explain complex and potenally unique ‘Swallonsusing an unsaveused approach The natalie approach regards accounting Seconsnuted ely rater than abject esi, and saturate research more Hey to use case studies and individual experiences of evens than the scene apposch of ‘ymcie mode! formulation and empitcal induction to develop hypotheses, lowed by satin esting ofthe hypotheses Misconceptions associated wit centic approaches to accounting research, and why theyatemibconeeptions ‘Some have contended thatthe scientific approach to theory constuction ia accountng, Ie Inappropriate because cis to male roentt out of accounting prcisoners oF Iecae the sent method sures that hee sn ‘absolut thas accountng should achieve. Both ofthese views ae incoret Although an scountingteseatcher may Apply the scenic method to theory constuction, procttoner do not act as ceniss Tater the we the empl evidence an logical explanations from the approach © "sppor thet practices The scene method does no dain to powdeeth Instead, iemtems t provide peuatve evidence which, on the balance of probability, may provide as good a dsepdon explanation or predletion as eat can provide lees for auditing theory construction ‘The develepmentofa theory ofan has allowed wit lag approaches in aeountng theory Ely writers attempted to document the process of aang and the dues ‘expected f audiors Anemprsto dendopa general theory of euding Began inthe 19605 aed desersed and prescribed best ating practice More een, experimental research hss tied how auditors make decisions in an attempt to predict auditor behaviou and poivethodes explain demand foraudingand audit fees using economic models Questions 1. A theo that purely static ester” Is this tet How can tis statement relate to scounting! 2. One ype of theory contruction involves observing the practices and techniques ‘of working accountant and then aching those pracices and techniques © {) What pe of tieoryconsiruaton ith {(b) What athe advantages ofthis approach compared with a dion ‘wsfulnes approach to theory consraction?(What are he daantages of thie apprene? {@) Do you believe tha this ia good approach to eveepinga theory of counting? Why or why not 45. Dexribe he verantc approach to theory constuction (@) Should the outptsofscounting stems be ved? (©) fs, how can this be achieved? Hino why no? 4: Inthe 19700 there wat much debate about how to asco frat, (4) Did this dete mvave positive ey or normative teary? (6) eitimperaat to acount forthe effects of inflation? Why orwhy nat 5. Researches wo develop postive theories and researchers who develop normative theories often donot share the same views abou he oles of their expectine approaches to theory constuction. (@) How do postive end normative theois diet () Canpostive theories saat nosmatie thos orice versat If ye, ive anexample tfnot why not? 6, Can acounting teary be conseucted a purely syntactical exis? Why oF why 7, Classify the flowing hypehese ecoring io wether they are the conclusions of Psi oF noumaive theories. Explain your anovers- (G) Miso con counting shouldbe replaced by a make valuesytem, () Historia oe accunting provider information wed by credo. (6) Hiei cont acounting weed by many manages oalloatecatsin determining dvsona perfomance. 8, Given eample ofthe type of lses that might be resolved by accounting ‘heoritsdeveloped uring te following methods of theory constuction. (@) peyholegclpraginatc approach () sents approsen {omar approach (4) nonnative approach (©) postivesppreach ‘9, Explain he natralinic and sytace approaches to theory constuction, Are these approaches mutually exclusive Why or why not! 10, Toe derision uaeulese approach 1 theory development can be sed to develop theories of acrounting (@) Explain what meant by the deckion-usfuness apprcah 1 theory development (How can the decision seulnes approach rate to accounting theory fomltion’ (0) Ge two eines of decisions th require dita obtained fom sccunting report 11, What ype ofa theory is historical cost How ha it been dvved? Do you hare any cillss of historical cost acouning! 12, plain the peychologialpragmati approach to accounting theory. ive an example of how team be applied 13, Gian example of an acounting convention usually adopted in historical cost ‘Sccounting,Convestions gove the way scrounge practine, snd convenions fre by deinen, known from practice {@) What theoretical approach used to derive conventions! (b) What does your answer to (a) imply about the potenal for accouring {ores ated on eonventians to be insovaive In proving tefl information’14, Hoye do you think the masive amounts af data now avlable fom infomation technologie wil ext {@) the development of accounting theorist (6) the testing of accounting theres! 15, What ae some common cic of sient spprotch to profesions such at secounting snd lw! Are they vai Why or wey nat? 16, Ely audlting theories were consuced by observing the practices of sudo ‘hat ype of theory conszicon i thie! What ate the advantage snd Aisndvaniages ofthis approach 17 He would you design an experiment to provide evidence on how aoe make judgements? What competing tes would arse? Additional readings Barcel, Cub, G Hopwood, A. & Heghes. 1980, ‘Theft of accounting in ‘rgazaionsandsoce Aout Orns on Soy, 5 8.1. Ccalkin ute 1987, "The methodology of ely acounng tors, Abc 23, woh. 17-30. ‘lat & Underdown, 8 2000, Actin — they and re 7 London eason Eaeston ender Ms, Peon, las 2004, Fnac aun hry Sydney Paton rene al Jones 8, Ronano, G8 Ranatungs, 13995, Asotin oy &onenpony ren ‘Syne: aos ce yam 1980, Senco Topica manage acing ited by end, 1 Carbeg and Sapens Oxford Philip An Publier Scot, W209, inca aig Deny, eed, Toon: enon Elucaon Samp, E198, "Why ean acount Become scence ke ts? Awa, vol 7, Verechia, R 1290, ‘nermation quality and dsaetlonary dios, wat of Wile 1576: rohion in acnting ove. Acuna. "Wot, Zier, Tala, 8 Wall P2005, Fanci! awunng one ft ind soo nsquncySt ,Souank Thomaon Leng ‘Woodware Pin 1596, Orguiuonl ema and sakoler tnfmatonprovion, Brith oa of Managem, vl. 7. pp. 329-47 ‘The folowing article prosidesan crap ofalteratve approach loth constuction si evan of aenuntng theory al pic. New accounting rules ‘don’t add up" tame pon Acian’sbiggest companies, once enhuaic advocates of ileal accounting “anny ve tamed sour onthe tle, coping a hey aemaking accouns mor opaque and ss seal on Spon chiman ofthe invent Hunded Group of finance dretors, said compares were being ford to pest eum 1a sess Hat alos bedART + Acco hay explanation“ drt want a eho and Uke apo accountng) 0 inline conuniation bowen busines and owns” he tid The Fanci Tine tational ancl Repti Stns hae changed he face of eco ce tir sudan nthe xan non yea, eg sted companies toon [vious unreported guess aloe ch ther ntarmaion fn ile Way. ‘Te whapines Beth corse fn ins devsopmers fr ulesnakers 2 tho inemotonl Acczuring Scns Bond (WS ia London, whch a geal ‘cand isrish contents mre sappoive than es in Eure ‘Me Syrnonl,chiel nan offer of raze, sa he suppor the goal cf singles of hil reporing sane to make account leer 2 ee ‘comparable Tut re devel inthe wrong decsion adhe expres esmatins about Asin conceal dns the see a sah seen a rong US inluence ower th fo "he new sadn ae mere comple than exiting th accounting rules and rer se tecnica elos of ange oes fo dsvative at employee So opens to peion fd defi andoalsnce shee Ene. Te iodo ‘Sr tartalo’ accountng, ein ast ty revshaslors ob posed ough Thetncome stressed spare leebere inthe U. Same componies sy it reduce wala na repored pres, dsactng tention frp ender pfomance “om Jey, ec chakra tho ASB, ected tees of a vale sectng tut ate tht sedate were ving ese neat cig ‘ompanie “Ts a ur objective to ge amay an economic ry. Theres thing more seal nth wef nasty he i ‘Me Symonds abo veed warts abou ah agreement buen the ASB ad he US iganca Accounting Sanda ar ont recor bee He aout fle ad fur redoce copra compliance eats. Tere fone concer a the Sent ofthe rlahonsp bear the ASH and ASD means we are Dadi down 3 UUspath wthou adequate debate “fe und Creu ekg on a ore ded at of aired changes present tothe ins, Under pss om oe Ey sant hve ed in eee MONS ‘espnd oe concams of at east soma conse Question 1 What re ternational fn seponing sands SH 3. Ny guns ave expense I ail. it ther oles that you think the causing Bish businesspeople 16 be ups abou to prospect of adn, thes, 2, Case each fhe thee feos you maton in response question 2. {@) thee anpiialevtlrceto suport te fer {iy ito anaes lading fom he ctor tothe corpsins out adopting he IFRS ‘canifc nara int pores Explain your arse. 4. How coul esses enalat the dein ules fain the RS §L Whale cn postive theory play reslving the su) dee in the lle? {hat rls at norman ory play rabid se) deserved che elt‘unerous approaches can be taken o construct a theory of bow ad why Investors ‘ie sccountingmumbers in making te nvertmet deta, Then ease "ample ofhow moe than on approach might he posible, o ven propre The thrills gone by i ant Alt tend tent’ 13.5% re in unde po 2008-05 and une At doublet gmt Tor 2005 were reson enh te mae wat ht ins phe Sach igh of $14.24, he pice snow $12.91. The robles ack cf lctamo, copa th hey a gsr Sek Leese he doe a io rosacea i deus plugs into Unied Sts prone tedoramgotr, btw emis lpi acl ne edraldevopnen and ensructon gun wh pepe veneer tn wins irnanal assay naa scsi Unie Stes ae Acti elon sal Kha unre prot pc ncoigelng op ‘he Wo nd Conse she he Sep 1-200 tern ac ut moore ingecie sb ay pte nde Ld Lenuhasotenred Negru Inout esc ec ar une ad oplarso o s0. int comps sg oe dnd ene sling MLC ‘und nsgenen ness js the Asalion spre ho abet 6 intone it ncunknown word US pop techn, hata pened ttre peso at ete Gig Clarke wai Usjsb ania loc em shape an he's enor een sean done 2 pb at hve ve ution sou hy i Las id or Gana rey ‘tr aad water Ce sol have mae er a more esi ne pico ona sale nil “CPT nes ccc Lon! Lone ctv eon, The watonp ad ben smal boelitUaod tee mde sso on ar OT manager re i ‘Trutyicone pie tance tLend ese nar cycle snes "Te sl ssl ane feet coe Nowy wn tps sos poptes uch se lew shopping crn Bra an ting Trusin mal nth US. mens nce wna oH 2004-05 ag Sd elongate 30-358: Gre bao tok wed srg, Tacs acs eat gta Cle ened tht the Soy eae 5 Inkesone yee acon iS and Lee shares yd 44%, bse on he 2004-05 ein of 57 “hepa ply kd ste ua or rane fe sane, Che rane lice Roger srs tit wth aa ie of ering caning fen Asa, he fg cts shuld Deenoghto povided 20. eo takangon = 0-00 otto “Tht mons ave ned a hgh yl hn would ei fms campale company pong ily red ends The psa pce ec the eee ‘stun ok eto cars double sy comigs ne een eth canbe Sted, Questions 1 and Lee reported 13.5 pr ent incest in rt fr 2008-05. Why was the Share market unimpressed?2. Inigo expla soho mbes ection to el cae ep earings, tapi her any yo oul he llanieg approaches to Secoutng theory eortucon {2 pragatie {t detson wiles {postive accountng hoor (6 normative hoor (sees approach (0 statis ppc 2. Which fhe aptortes described in answer to questan (2) do you oes mos el ye 4 rete approaches you deca in answer question 2) uty exchsive, oF ante he se Complement ech ae! Ex “The fallowing article providesan example oflleratve approaches tothe constuction nd vuln of acount theory ond pai. Intergovernmental working group of experts on international standards of accounting and reporting As this Grup of Eps has undecered on ary aeasons, principles, high ‘qty final opting sandads ne ce for Ue eater fin ae ninja the trial nae ariecure, Arse globulin woe canary res i occouting,eporngndaetng ands na wer conan that has Been gowing increasingly ered, remurce mekticaton a sation has bon aking pace ats Hordes nthe second half ots decade, we have wise (he rosonotion of the franca epering landscape. Av unprecedented ue of hsp nope neratinal Panda? Reporting Sanda es the bas for the Preparaion af fs nancial Sotenens ‘The ceraty of reales comparable iforon for Ganci stabiy and vento” bly fo aes ik apd allocate resources 1 ferent invest “pporunies has bac pinky morse by ecnt evens. Th bel fhancal iis hs shown how in world of urprcedeed finance neroxpendence — inianeprent final rl prod nt Email accounts can wreak havoc ‘oly wih investor pros, bat = more porary — whe development presets ‘itnocent bysandey, relating some othe mest vuole popu ‘be hea of cis ae ecbame ith opacity ad comple, while Goal insttons ray ove bon epg 1 of lmao, the gueston wat whether tro how pote rol any meaning night or usa uneancing ofthe enpeiey nen ek With inasigh, the anewer cles no snow ein that vente torso leading bes and ean accountants nd inal audios (hotly unt the ke fer prod ‘ln. gunn fear cofnce wl once agin rq fl wansparerey, beter neering, vepoing and aiing sandards and practices. The curen shes prompled examina of sever sccoung poring ae ang fequrements "= indeding conolsion of olthalnce shed ene, ft value Urincrtco-moriet valaton of ancl! lostamens an related uncetinies Fandersand tain fgt ofthe erent cs, standard see have akon action (0 mend elevantsandaresQuestions 1 Wht remains nei porting and RS) 2 Many conceme are expressed in ths atc Ut Be acts that yu thik ae ‘ustg concen shout he sc of dopo RS 1. Comtech ofthe tie fos pou manor pores gucon 2. thee ‘inc evidence to suppont the fit 4. lhe ansis ening om he actor othe concensabaa adoption of Scie ‘natalie hs spree Explain your anos. What le can nomatve tary py In eg the bse) desea io he ‘Numerous approches can hein to comet a theory of how and wy fvenoe {czecoiig menor ming the vsiment deco he llong ese an ‘ample of how more than ene approach might be posite or even spp ‘Tabcorp costs trouble market by ar een Taco al year profit may be back a the ack bul he ping ns shares were oun! moet percent yest, with insesor word aut mexiing cence fee an tee nan eat $100 ono be span yagi Cl eas. he keh oul fds ll ake he cot he Syey ann rine $575 milion an ervonmert Tabcorp chief execu mer Fork Kuper sd rerine challenging “Think wal sl ave a apc nthe econ ovr the nes 12 moni 2, vie we al very encouraged yhoo ae covery and euly makes Finke that uncenaysttere ea Tabcorp uid 3 $5217 millon at pe fo the yar fo fone 30, a sharp turaroon from the prsioue year's $164.0 mon ls, which ad been weigh ‘dn ly wade sociated wh he Via Covenants dein foe the ‘pebling doo ete Tabonp a Tat 2072 ‘Nomlited poi for the past yes, Incting the allt of onetime and canons in Tabor’ hari wi ale gait higholinggbles se 1.2 par nto $86.2 mon Revenue rom 5 percent to $4.2 balan Homeve, Inston: dsmased the proft rk — which was slighty ahead of ‘xpecttons with tbe sei losing 35e wakes a $7.03 in tenga over she Ia. Alyssa ivtrs were spooked by he company’ rin outlook and de sion hat Tlence Ts to vcing cls could ia $65 milion — more fan ou $30 millon thc preity Mage Te company aol hava lo sso ihe token Quetta. the elk commentary wt 2 bt undrwhelng,” ad Astck aay Rohan sundae "Waging will rbably chive low gromth due othe ful yer impact of 30 fk charges ut canoe he bigest dows — thre wl es S30 min ak Iitan be Qucertan esto pokis and tena $20 lon ESI pat fa et ‘asption at Slar Cy gong be ough” TMF Fuk Kupper sid te bord gave he green ight othe extra spend on Sar City ‘ete’ his moh He id nat atid the ea $100 ral mould go towards ‘eating up gaming, howard od and beverage ota “igh, and the retin lect upgrades“aio sensos dvi books 2.6 per cen ian renee forth yar, gh HTT percenio $28, millon ae our and marktineapnes ew Revete ‘rom pring von Kicked p78 per ce while Tf pet ca 0 $251.7 ‘lion ered by 51 perce jump reapers om sang up Let. ‘ cmpany declares al vend of 30e se to be paid Seplonber 1 for sahara the boc hy Age 1 alg he year payment 0 8, vgued wih the presaus year hc, which iced x etl ded Questions {Tle son ines in ro fr 2008-2000, Why was he share mat 2. intying to eo shaeholes shed ration to Tabcorp’ reponed earings ‘ill ether adr how yu could use te fling approaches fo acca ‘hor ensncion (a pagrate (hs pote sceoeting ery {6 hawealsic appre 23 the approche you ected in your answer question (2 ually excise, ‘rcanahey be une complement enh lhe! Exp, 4. What ent hy nomale amin? Why would em ile oma cemnings! The (along case demonstates ow investors supplement thir decors sing legal explanatons in aon to ecu forma ‘Alumina jumps on bad news ‘Auta has pose 29862 pee cet ln fal po aftr a ough yea forthe ‘hanna str, Le conpanys hoes roe flora Ine wrt of te dowry ‘righ be over "Aun, 2 io pane in Alcoa Wedd Aanina & Chicas WAC) group, ses tpi lion ne fe eo he ye, down ram 3. loan tbe Prevournerim pedo mean undying of 14.6 rill compared wih [ott of $1517 milion pels, asthe company cal reduction by 17 pet cot owe thecal tat art expectoration $19 lien ‘hit oxecuve John Bova ml the tthe al woe “etooenany iu” (or the slic indy. Wile he reraine cats, he sd the salon ws Improving We rye thal ts wars ibd ws i rms of he pact he {lesa rise ec wee qu conic hat he mal begin op OHe rom here he i. “Mean sae he resi flected skins pies Between las! Nowe ad ‘Aoi who ey sverige below SUSTAO0 9 one ricer fd since rebounded 0 trade above $0S2000 one. ‘Shoei Anion yserdy ened up Yc oF 879 por cea $1,795 —the soc hight close sine lt Novara 10, when teed 34105 Th make ing "hee chs cio wh heel ot air wasup pr cnt over” 'Sid1G Maret research nalyt Ban Pl. “he compony id ot eda» dividend ter revoutly paying 12casharc tern iva weld continue reve te Gen nse every sb monthsQuestions 1 Ani repo an 863 poco li ft aller pot and ped se ‘ar Wy dd is sare price sey 9.79 par ea an the annonce cle? 2. nang ep Ie postive rapoe o Alum’ tepals, xn ‘what anor how ys coud ure the allowing soproseeso scan any fn} docion wees 1) ornate te) scenic 2 Which fhe approaches described In answer to questi 2 you ives mos ‘alt Wi 4, Expo the mporiance to vets of evping a heoy to epi the reationsip bate eangesoneuncenet el sre ce mover inctes 1. RSetag “On heey cntrn osm of ng teh a. Spm 1965, ior Ba ‘coun, a fee octttine na ‘fora more dete decipion ee temas barn Sioroot Sipe conc ai [Fh 1953.99.33. vo. Ahab tion Bt in ‘pc ra nang Shida Fe AM, 11 Comins ed RG Theor ‘unit nd cng ‘ming Cand Sasa, ‘etn 58pm el 14 mignon Speer 208 Te weaning ‘Se pase eet ty arbre eel exe esi Teethe qual of the Sanna ‘Steet end comanee ‘che etn acon Tanai far ple Tos ‘Recmntmeshng oe ‘imme rope oe ntl by sort stn Suber ea 15 Poresmple WA Sindy Mode of fan 3 Ape 13 1 Hage Co a a (802) (a) 22, Lope {hedot afm aor igo Se ath ptm ‘tlc edtor wold Pare ccunanes ofa {rok ogo condone ‘socio bm no loibaond eva fhe company on ies co ‘te hon and oop he ‘ope ee culom mda 17 Landon on onl a (6.2) (ios) Fen 0 i foreampl Fae Acne Cee ia oth (70) 92 Yin es ron Ca 8 Son eden aera ing af at ‘sm eo 0% phe pf aig men 2. he Re ae son so 9700.3 90 ‘oleh nly 1978p, 54-531 28 Jasin eyorco tec ‘oti aun one Tie ‘awa Re epee hie Rv ah ‘Cop steed of asic as Vio A penal hay of eence {ete conceal oro Stn en omg CHAPTER? Accouming oy connection BL27a nla Roundable 983, pp. 284-251 Mook 30. LE Degli snd at ‘rig ser. gon ‘Rane tal acing Coie)" quay ra cor ou ‘ening ttn Neer, Erni core Eam Dame 28, $F blag and Hoc,‘ ‘New Yor: AICPA 1981 “31. Sema The pricing af uit retion omar dan 22.40 Te rane proces and seh on ee usa ‘oc ne clon of Toensumgy olsen of antiga vl 18 Sng {iets and ult cope oa aga, ‘oan re 8 ‘sonra cnn ‘2, 2 hon DSS, enw so 2. Sng pees