Question 1

What do you understand from the term ‘accounting theory’?

Accounting theory is a set of assumptions, frameworks, and methodologies used in
the study and application of financial reporting principles. accounting theory is to
explain and predict accounting practice. Explanation means providing reasons for
observed practice. For example, positive accounting theory seeks to explain why
firms continue to use historical cost accounting and why certain firms switch between
a numbers of accounting techniques.

Accounting theory is a set of assumptions, frameworks, and methodologies used in

the study and application of financial reporting principles. Accounting theory may be
defined as a logical reasoning in the form of a set of broad principles that (1) provide
a general frame of reference by which accounting practice can be evaluated and (2)
guide the development of new practices and procedures.

Question 2
How accounting theories relate to accounting practices? Give examples.
Accounting theory is a set of broad principles that provide a general frame of
reference by which accounting practice can be evaluated and guide the development
of new practices and procedures. It can also be defined as logical reasoning in the
form of a set of broad principles that provide a general frame of reference by which
accounting practice can be evaluated and guide the development of new practices and
procedures. It is the rationalization of the rules of accounting which further explains
the manner in which accountants gather, records, classifies report and interprets
financial data especially when monetary amount is determined in the financial
statements.
Example: Conceptual framework (normative). Different people has different idea
Market efficiency theory

Question 3
Differentiate between normative and positive approach to the development of
accounting theory

通常 10 分，写 5 point, 也可以讲好处 and 坏处

Top to bottom & bottom to top

Normative starts with the theory and deduces to specific policies, while positive starts
with specific policies, and generalizes to the higher-level principles
positive accounting theory looks at actual real world transactions and events,
examines how companies are accounting for those events, and seeks to understand the
economic consequences of those accounting decisions. With that knowledge, the
theory then tries to predict how companies will account for transactions and events in
the future.
normative accounting theory tells accounting policy makers what should be done
based on a theoretical principle.

Question 4
Elaborate on the decision usefulness theory of accounting.
definition and accounting practices
summary, extent of effect to accounting practice, example
The decision-usefulness theory of accounting provides direction for all accounting
and financial reporting choices. Under this theory, the primary objective of financial
reporting is to provide information that is useful in making investment decisions.
Decision-usefulness theory of accounting provides direction for all accounting and
financial reporting choices. Under this theory, the primary objective of financial
reporting is to provide information that is useful in making investment decisions.
Example, note to the account to explain further about the information to the user of
SPL and SFP

Question 5
Discuss on the positivistic nature of mainstream accounting research.
Positivistic nature: explain, relate with inductive, example
Accounting research: involve data analysis, inter to article positive research (inductive
hypothetical analysis
Positive methodology has become the methodology of mainstream accounting
research because the mainstream accounting research is primarily concerned with the
functioning of accounting. Such work starts from an objective view of society, regards
individual behavior as deterministic, uses empirical observations and a positive
research methodology. Positive accounting research seeks to explain and predict
accounting practices and accounting policy choices and is not focused on establishing
the principles of accounting.

Question 6
Explain the role of interpretative and critical research.
extension of interpretative/ normative/ deductive
for solution
Interpretive research takes varying viewpoints into account while analyzing and
explaining sociological data and conclusions. In contrast, the critical method
questions conclusions by using different disciplines. The critical method seeks to
correct sociological conclusions or to disprove faulty conclusions