ACC712-Special Topics in

Accounting
WELCOME TO OUR FIRST LECTURE
Lecture Outline:
Introduction
Course Outline
Course Assessment
Course Topics
Course Material
Topic one- Accounting Theories
Introduction
Welcome to Special Topics in Accounting
Accounting is a dynamic discipline and evolves as a result of
technological changes
The topics include:
 Accounting theories
 Conceptual framework

 International Accounting Standard

 Issues in Reporting

 Corporate governance

 Corporate social responsibility reporting

 Ethics

 Accountant ‘s Roles in eradicating corruption

Course Outline
Lecture Times- Mondays 5pm to 7pm
Tutorial Times- To be confirm during class
Consultations- through email
Course Descriptions
Learning Targets/Outcomes
Resources:
Prescribe text book: Drever et al., (2007), Contemporary
Issues in Accounting, John Willey Australia, Australia.
Supplementary: Deegan, C., Australian Financial Accounting,
McGraw Hill Australia, Australia and Henderson et al. (2013)
Issues in Accounting, Pearson Australia, Australia.
Course Outline Cont…
Class Shares
Course Content and Reading references- need to
finalize with HOS
Course Assessment
Internal Assessment: 50% of total, comprising:
 Tutorial Attendance/Participation: 10%
 Mid-Semester Test: 25% (Week 7)
 Major Assignment: 10% (Week 13)
 Presentation: 5% (Wk13&14)
 Final Exam: 50%
Topic 1: Accounting Theories
Learning Objectives:
1. What is Accounting Theories
2. Outline the benefits of accounting Theories
3. Explain two types of theories (positive & normative)
4. Explain the relationship between theory and
research
5. Explain the areas of accounting research and their
benefits
1. What are Accounting Theories
What is theory:
 A belief or principle that guides actions or behaviour
e.g. theories in management about motivating
employees,
 Idea or set of ideas that is intended to explain
something e.g. Darwin’s theory of evolution
 A set of principles, on which a subject is based, or
ideas that are suggested to explain a fact or event e.g.
Accounting Theories
Accounting theory:
a description, explanation or a prediction [of
accounting practice] based on observations and/or
logical reasoning’
‘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’.20
Why Theory is needed
Theories can explain, predict and guide decisions and
actions
Theory provides an explanation of what is happening
It helps us predict what will happen
Theories are the driving forces behind many of the
things affect our daily lives
 e.g. Government in terms of determining taxes
whether to increase or decrease
Theories about global warming and impact of uses of
resources.
2. Benefits of theory in Accounting :
Describing and explaining current accounting
practices e.g. capital market theory describes how
share prices react to accounting information –
researchers investigating financial reporting failures
(such as Enron) have, after identifying factors that
have contributed to these problems (e.g. lack of
independence of auditors, rules‐based accounting
standards and share‐based compensation payments),
arrived at theories about why these failures have
occurred.
Cont..
 predicting accounting practice, for example: – agency or contracting
theory, as well as explaining why managers may change the way in
which they account for
 providing principles to take into account when taking action or making
decisions; e.g. capital budgeting, and a theory of asset recognition
helps to determine when and how assets should be included in the
financial statement
 helping to identify problems and deficiencies with current accounting
practice and make improvements, for example: – the Conceptual
Framework , theories about how investors make decisions, and
theories about corporate social responsibility
3. Two Types of Theories:
Cont..
Positive Theories
Developing Positive theories
Evaluating Theories
there are many theories, and in some cases alternative
theories, about the same topic or area
E.g. In Accounting there are alternative theories about
how items should be measured.
Theories does not always correct nor accepted
People accept theories every day that they may not
fully understand (such as theories of global warming,
the theory of relativity and theories about how certain
diseases are spread).
Reasons theories might be accepted without firsthand or
direct knowledge:
1. the authority of the source of the theory
2. whether the theory makes sense and fits with
personal experiences and beliefs
3. whether other people accept the theory

Therefore, testing and evaluation of theories will usually

involve research. In this topic our main consideration
will be on accounting research.
4. The Role of Research
An accounting theory is either a description,
explanation or prediction of accounting practice or a
set of principles with which to evaluate or guide
practice.
Research- is the ‘diligent and systematic enquiry or
investigation into a subject in order to discover facts or
principles’ (Macquarie dictionary)
Research is often repeated and adjusted- knowledge
about accounting is expanding
Relationship between theory and
Research:
The relationship between theory and research is
complex
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)
Research may be conducted using an experiment in
which the relative usefulness of historical cost and fair
value measures are considered and it is found that
better decisions are made using fair values.
Cont..
There may be a theory that explains the relationship
between the accounting methods a manager chooses
and the compensation package of the manager.
 This could predict that if a manager’s bonus is related to
the accounting profit, the manager will choose
accounting methods that increase reported profits.
 Research could test whether this actually happens by
examining the bonus plans of managers and the
accounting choices they make.
• Research can come before a theory is formed or after it
is formed
Accounting Research (related theories)
Categories:
1. Research of or about accounting- considers the role of
accounting itself (the bigger picture) at the macro level
and considers questions such as:
I. what is the role of accounting?
II. Is accounting information useful in investment decisions?
III. Should accountability or decision usefulness be the key goal
of accounting?
IV. What impact does culture have on accounting?
V. And what role has accounting played in the rise of
capitalism or environmental degradation?
2. Research in accounting
Focuses more at the micro level on issues within
accounting and considers questions such as:
I. what measurements are being used?
II. What measures should be used?
III. And what impact do changes in specific accounting
policies have on share prices?
5. Research Areas in Accounting
A. Capital Market Research
 Investigate the use (and impact ) of accounting
information by capital markets
 Provides descriptions and explanations of market
behaviours and reactions to accounting information
B. Accounting policy Choice Research
 Attempted to explain the motivations behind the accounting
choices made by managers and its significant position continues
 Agency (or contracting) theory, which underlies much of this
research, is considered in the chapter that focuses on theories in
accounting.
C. Accounting Information Processing Research
Investigates the use (and users) of information in the decision-making
process , often using theories and models from psychology
E.g. investment decisions by a particular user of financial accounting
information (say an investor)
D. Critical Accounting Research
Considers the role of accounting in society and its social context and
aims to develop:
a critical understanding of the role of accounting processes and practices
and the accounting profession in the functioning of society and
organisations with an intention to use that understanding to engage
(where appropriate) in changing these processes, practices and the
profession
Considers social context of accounting
E. International Accounting Research
More uniform accounting standards worldwide and
effort towards harmonization of financial accounting
Research into differences in accounting practices and
also considered contextual and cultural influences on
financial accounting
There are of course other areas of research (such as
those specifically relating to auditing and accounting
history).
There are of course other areas of research (such as
those specifically relating to auditing and accounting
history).
Research about an issue in accounting can involve
many types of research and research areas. For
example, the issue of environmental accounting and
disclosures.
This requires environmental disclosures therefore
could also assist policy makers to make accurate
decisions.
The End
Any question??