Contemporary Issues in

Accounting

Chapter 1

An Introduction
Introduction

The nature of accounting & the role of

Accountants
 Accounting is not a ‘hard’ science, or a simple
mechanical exercise,
o Because accountants make judgements, e.g. measurement
estimations-depreciation methods,
 A number of accounting standards require choices
to be made (e.g. IAS16/AASB116 PP&E),
o Either be measured at fair value or on cost basis
 Accounting standard setting is a political process –
debate and consensus,
 Introduction

The nature of accounting & the role of

Accountants
For instance, new standard about Leases.
oIASB and the FASB undertook this as a joint
project the resulting standards differ in that:
 The standard issued by the IASB adopts a
single model, in principle, for accounting
for all leases for lessees (IFRS16).
 The standard issued by the FASB requires
leases to be classified as either operating
or finance lease,
 Introduction

The nature of accounting & the role of

Accountants
Therefore,
ofor globalization of businesses, a uniform set
of accounting standards become necessary
to ensure the quality of FS,
oEU and US pressures and its influence on
standard setting,
 Almost 120 nations either adopt IFRS or
allow its application.
 Introduction
Changing Views of Accounting
 Introduction

Changing Views of Accounting

oThe model highlights the role of professional
judgements. See AAA definition of
professional judgement p. 5,
oThe models depicts how necessary the
critical thinking in accounting precede the
professional judgement.
o Besides nature of accounting, the global
changing and business complexity also
contribute to the shape accounts role,
 Introduction
 Perceptions of Accounting
Depicts the focus of accounting:
oAs record-keeping
oCreation of financial reports according to
a set of rules
oBlack and white (right and wrong)
answers that all accountants agree on
oDefinitive
oUnambiguous
 Introduction
 Perceptions of Accounting
 What is Accounting-The Reality?
o Right side
 Accounting provides information fundamental to
informed economic decision-making.
 Accounting judgements require critical thinking to
create useful information that can help decision-
makers make better decisions.
 These decisions have consequences for economic
activity and, thus, accounting judgements.
 The ultimate benefit of better-informed decisions is
a more prosperous society for everyone,
 Introduction
 Perceptions of Accounting
 Examples of ongoing debates in accounting
Intangible assets
represent a large and growing portion of firms’
assets,
research consistently shows that intangible
assets are important to investors,
yet, most intangibles are omitted from balance
sheets
Why?
 Introduction
 Perceptions of Accounting
 Examples of ongoing debates in accounting
Identifiable(e.g. brand names)
Recognized as assets
Internally generated
Not recognized unless an acquisition of
business occurs –otherwise written off,
 Introduction
 What is Theory About
 Generally, many confuse about what is theory,
 Is theory necessary for our lives?
• The earth shape,
• Global warming,
• Agency theory,
• Social Justice theory,
• ……….
• …………..
• ………..
 Introduction
 What is Theory About
 Some view that accounting is computer-based,
and does not need theory,
 Some see that theory can explain and predict
accounting practices and outcome,
 So, what theory?
o an idea or set of ideas that is intended to
explain something,
o a belief or principle that guides actions or
behavior,
o Other definitions
 Introduction
 What is Theory About
 Accounting theory:
o A description, explanation or a prediction of
accounting practice based on observations
and/or logical reasoning,
o Logical reasoning in the form of a set of broad
principles that (1) provide a general framework
of reference by which accounting practice can
be evaluated and (2) guide the development of
new practice and procedures,
 Introduction
 Why Theory
 As said, theories can explain, predict and
guide decisions and actions,
Theory can influence understanding, views,
behavior and actions,
 Thus, theory can help us explain and
predict what will happen,
 See details of how accounting theory could help us
at p. 12.
 Introduction
 Accounting Theories
 If there is theory, does it mean it is
correct?
 It is not necessary that all theories are
correct.
 There are various ways to make
judgements about theories,
 To evaluate theory, there both simple
approaches to more systematic and
scientific approaches.
 Introduction
 Accounting Theories
 If you are a researcher or professional in
a particular discipline, it would be
expected that more legitimate,
independent and justifiable methods
would be applied in assessing and
evaluating theories,
o Theorycan be either accepted or rejected by
examining the logical construction of the
theory and considering evidence that
confirmed or refuted it.
 Introduction
 Understanding the role of research
 Definition of important concepts:
 Accounting theory:
• an accounting theory is either a description,
explanation or prediction of accounting
practice or a set of principles with which to
evaluate or guide practices,
 Research:
 Diligent and systematic enquiry or investigation
into a subject in order to discover facts or
principles,
 Introduction
 Relationship between theory and research
 Empirical research is concerned with
observation.
o E.g, researchers may conduct
experiments and observe the results.
 Research can be undertaken to test
theories, or it can result in new theories
being proposed (or both),
E.g. experiment research b/w HC vs. FV!
E.g. Managers bonus plans vs. accounting
choices,
 Introduction
 Research of or About Accounting
 It considers the role of accounting itself
at the macro level and considers
questions such as:
What is the role of accounting?
Is accounting information useful in
investment decisions

E.g. like research about medicine,

 Introduction
 Research In Accounting

 It focuses more at the micro level on

issues within accounting and
considers questions such as:
What measurements are being used?
What measures should be used? And
What impact do changes in specific
accounting policies have on share prices?
E.g. like research about the impact of medicine
on specific disease
 Introduction
 Research Areas In Accounting

 Capital Market Research,

 Accounting Policy choice,
 Accounting information processing,
 Critical accounting,
 International accounting,
 Introduction
 Case Study Approach

 Itoutlines,
What is case study and why are they
used?
Types of case studies,
 Introduction

 How to approach a case study

question?
Course assignments. Page 17-18.
END