1 Positive Accounting Theory
Positive accounting theory is arguably an explanatory of accounting practice; economic based theory. RL Watts and JL Zimmerman developed positive accounting theory in 1980s at the William E School of Administration at the Rochester University. People do not know what they want at times. So there are different options available to accountants. There are some logical facts to choose one specific method. On choosing one specific method, accountants will maximize their own benefit first, and then company benefit, shareholder benefit and at last social benefits. A specific method will allow accountants to feel better to do their work as they like them the way they know and they way they are best at doing (Jayne Godfrey). For instance, accountant will write accumulated depreciation on asset value side for big company whereas when a poor balance sheet, it is better to put accumulated depreciation on credit side, so the company will have extra money in their debit (Ken Leo, John Hoggett, 2012). Accountants will use choice of accounting method depending on the situation. Positive accounting theory consists of different types of hypothesis such as bonus plan, political cost and debt hypothesis, which allow the managers to choose one specific method over another. It is accountants’ theory and it is descriptive and accountants will tell what to record.
1.1 Main Focus
Positive accounting theory efforts to explain the following
1. Managers’ choice of particular accounting method, in terms of self-interest.
2. The relationship between shareholders, employees, clients and etc.
3. The way in which financial accounting system can minimize cost by affiliating competing interest.
2 Agency Theory
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... can use accounting handbook during the circumstances, where they need information. Accountants want individual choice of method, which give them a freedom to do work, more confident to do work. Different people have various way to explain, different ways to understand things. So, it is always better to perform what people specialized at doing. Accountant is same as other group of people, the way they like, and accountants do better. The entire accountants have one and same results in spite of using different individual choice of method as they all follow same equation and accounting handbook. The benefit to the accounting society is provided by accountant using particular method of accounting.
6 References
AASB, Australian Accounting Standards Board, Statement of Accounting Concepts SAC4 ‘Definition and recognition of the elements of financial stat
Financial Accounting Standards Board (FASB). Accounting Standards Codification TM. Financial Accounting Standards Board (FASB), 2010. Web. 16 May 2014.
FASB Codification. Digital image. FASB Accounting Standards Codification Professional View. FASB. Web. 28 Nov. 2010. .
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According to Financial Accounting Foundation (2014), the FASB Accounting Standards codification is "the source of authoritative generally accepted accounting principle (GAAP) recognized by the Financial Accounting Standard Board (FASB) to be applied to nongovernmental entities" (FASB.org, 2014). The codification system allows user to access the authoritative content, do research, and give feedback. The purpose of the FASB Codification system is make clear and easier to locating, understanding and applying the accounting standards through using an online database, which developed and issued the standards over the years. The implementation of codification system reduces the amount of time and effort required to resolve accounting research issues.
Financial accounting is the process of reporting a variety of information from a specific entity with hope to aid internal and external parties about the financial position of the entity (Hoggett et al., 2006). The guidelines of these reports are heavily regulated by an array of corporations to provide a true and honest image of the entities financial position. There are a select group of main bodies that construct the framework for the Regulations of Financial Reporting with in Australia. To regulate financial reporting the Corporations Act was formed so that all accountants may conform to the standard. This act was created by the Commonwealth of Australia and focuses not only on companies but also investments and partnerships.
‘Beyond Budgeting is the set of guiding principles that, if followed, will enable an organization to manage its performance and decentralize its decision making process without the need for traditional budgets. Its purpose is to enable the organization to meet the success factors of the information economy (e.g. being adaptive in unpredictable conditions).’
Wolk, H., Dodd, J., & Tearney, M. (2003). Accounting Theory: Conceptual Issues in a Political and Economic Environment (6th edition ed.). South-Western College Pub.
Accounting is basically a service activity. Its purpose is to provide quantitative information that principally used by the managers, investors, tax authorities, and other decision makers to make the financial decisions within companies, organizations, and public agencies. Accounting is also widely known as the “language of business.” An accountant measures, communicates, and interprets financial activities. They prepare financial statements or reports for individuals, businesses, government agencies, or other non-profit organizations. They use the accounting systems to categorize the expenses and income to the typical groups. They also keep tract of the money received or paid out to see if the transactions are accurate and complete. Accountants are familiar with the computer operation. They use the computer...
These varying standards have created inconsistencies between the reporting of financial statements. The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) collaborated to develop a compatible set of accounting standards that would provide one framework to solve this problem. The team introduces initial drafts of new revenue recognition standard during 2010 and 2011. The final standard was issued on May 28th, 2014.
Marshall, D. H., McManus, W. W, & Viele, D. (2002). Accounting: What the Numbers Mean. 5th ed. San Francisco: Irwin/McGraw-Hill.
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