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Prepared by Arabella Volkov University of Southern Queensland. References. Text – Chapter 3 Accounting theory construction. Learning Objectives. At the conclusion of this lecture, you should have an appreciation of: how pragmatic approaches to theory development apply to accounting
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Prepared by Arabella Volkov University of Southern Queensland
References Text – Chapter 3 Accounting theory construction
Learning Objectives At the conclusion of this lecture, you should have an appreciation of: • how pragmatic approaches to theory development apply to accounting • criticisms that have been levelled at historical cost accounting as a theoretical model • normative true income theories andthe decision-usefulness approach
Learning Objectives At the conclusion of this lecture, you should have an appreciation of: • how positive accounting theories are constructed • alternative naturalistic approaches and the importance of ontology • misconceptions associated with scientific approaches to accounting research, and why they are misconceptions
Pragmatic theories • Descriptive pragmatics • observe behaviour of accountants • inductive approach • no logical assessment of actions • does not allow for change • Psychological pragmatics • observe reactions of users
Syntactic and semantic theories • Semantic inputs (recorded transactions) • Vouchers • Journals • Ledgers
Syntactic and semantic theories • Historical cost criticisms • Poor syntax (different monetary measures added) • Semantic deficiencies • Semantic inputs • Manipulated on the basis of the premises and assumptions of historical cost model
Syntactic and semantic theories • No empirical verification of outputs • different acceptable accounting techniques Fixed assets should be carried at cost…in historical accounts, unless such cost is no longer meaningful. (Chambers)
Normative theories • 1950s and 1960s ‘golden age’ • policy recommendations • what should be • concentrated on: • true income • decision-usefulness • based on analytic and empirical propositions Financial statements should mean what they say
Accounting system of company X Prediction model of user Decision model of user The decision process Normative theories Decision usefulness
Positive theories • ‘experiences’ or ‘facts’ of the real world • explaining reasons for current practice • predicting the role of accounting information in decision-making
Different perspectives • scientific approach vs. ‘naturalistic’ research CATEGORY ASSUMPTION 1. Reality as a concrete structure 2. Reality as a concrete process 3. Reality as a contextual field of information 4. Reality as a symbolic discourse 5. Reality as a social construction 6. Reality as projection of human imagination
Scientific approach applied to accounting Misconceptions of purpose • Scientists out of accounting practitioners? • Researcher v. practitioner • Assumption of ‘absolute truth’ • Scientific method attempts to description, explanation and/or prediction
Key terms and concepts • Positive • Normative • Pragmatic • Historical cost • Ontology • Theoretical model
Summary • Many different approaches to theory formulation in accounting • Evolution of accounting theory • positive v. normative • scientific v. naturalistic
Where to get more information • Other courses • Accounting Handbook • SACs 1-4 • List books • Articles • Electronic sources