The document discusses various approaches to accounting theory. It describes the traditional approaches, which include the pragmatic/authoritarian approach, deductive approach, inductive approach, ethical approach, sociological approach, and economic approach. It also discusses the regulatory approach and theories to explain regulation, including public interest theory, capture theory, and economic interest group theory. The primary objective of accounting theory is to provide a basis for predicting and explaining accounting events and behaviors.
auditing is an examination of accounting
records undertaken with a view to establish whether they correctly and completely reflect the transactions to which they relate.
It explains the IASB’s conceptual framework and the advantages and disadvantages of such a framework. It also gives vivid explanation on the contents of the conceptual framework
This ppt covers the following points :-
1. introduction of management accounting
2. Definition of management accounting
3. Nature, objective, tools and techniques, significance and limitations of management accounting
4. difference between financial and management accounting and also includes difference between cost and management accounting
5. management accountant and its roles
6. Management accounting organisation
auditing is an examination of accounting
records undertaken with a view to establish whether they correctly and completely reflect the transactions to which they relate.
It explains the IASB’s conceptual framework and the advantages and disadvantages of such a framework. It also gives vivid explanation on the contents of the conceptual framework
This ppt covers the following points :-
1. introduction of management accounting
2. Definition of management accounting
3. Nature, objective, tools and techniques, significance and limitations of management accounting
4. difference between financial and management accounting and also includes difference between cost and management accounting
5. management accountant and its roles
6. Management accounting organisation
Presentation by Mohammad Zayyad, Regulatory Improvement Committee, United Kingdom, at the Workshop on the Elaboration and Evaluation of RIA at sub-national Level, Cuernavaca Morelos, Mexico, 11-12 November 2014, Session 3. Further information is available at http://www.oecd.org/gov/regulatory-policy/
Chapter 9Audit Risk AssessmentPrepared by Dr Phil Saj1.docxmccormicknadine86
Chapter 9
Audit Risk Assessment
Prepared by Dr Phil Saj
1
Learning objectives
Appreciate the importance of audit risk assessment and why it is linked to financial statement assertions.
Explain the importance of business risks in audit planning.
Describe the procedures performed by an auditor to assess risk.
Appreciate the importance of internal control to an entity and to its independent auditors.
2
Learning objectives
Indicate the procedures for obtaining and documenting an understanding of the entity’s internal control.
Explain why and how a preliminary assessment of control risk is made.
Explain the importance of the concept of audit risk and its three components.
3
Management’s financial statement assertions
Existence or occurrence
Assets or liabilities of the entity exist at a given date and whether recorded transactions or events have occurred during the period.
Completeness
Transactions, events and accounts that should be presented in the financial statement are included.
Cut-off
All transactions, events and accounts have been recorded in the correct period.
4
Management’s financial statement assertions
Rights and obligations
Assets represent rights of the entity and liabilities
are the obligations of the entity at a given date.
Valuation and allocation
Asset, liability, components have been included in the
financial statements at the appropriate amounts.
Accuracy
Transactions have been appropriately recorded
in the proper accounts.
5
Management’s financial statement assertions
Presentation and disclosure
Particular components of the financial statements are
properly classified, described and disclosed.
Refer to the textbook Table 9.1, page 363, for illustrations of each of these assertions.
6
Business risk assessment
A business risk approach allows the auditor to:
Identify threats faced by the organisation.
Recognises that most business risks will eventually
have an effect on the financial statements.
Increase the chances of identifying risks of material
misstatements in the financial reports
Categories of business risk:
Financial risk
Operational risk
Compliance risk
7
Risk assessment procedures
Enquiries
Management, staff, internal auditors, company bankers,
legal advisors.
Analytical procedures
Provide a broad indication of the likelihood of possible
errors.
Observations and inspections
Inspection of manuals, visiting business premises,
observing procedures taking place.
8
Importance of internal control
The Committee of Sponsoring Organisations (COSO) of
the Treadway Commission defines internal control as:
a process, effected by an entity’s board of directors,
management and other personnel, designed to
provide reasonable assurance regarding the
achievement of objectives in the following categories:
Effectiveness and efficiency of ...
Executive Directors Chat Leveraging AI for Diversity, Equity, and InclusionTechSoup
Let’s explore the intersection of technology and equity in the final session of our DEI series. Discover how AI tools, like ChatGPT, can be used to support and enhance your nonprofit's DEI initiatives. Participants will gain insights into practical AI applications and get tips for leveraging technology to advance their DEI goals.
How to Make a Field invisible in Odoo 17Celine George
It is possible to hide or invisible some fields in odoo. Commonly using “invisible” attribute in the field definition to invisible the fields. This slide will show how to make a field invisible in odoo 17.
Acetabularia Information For Class 9 .docxvaibhavrinwa19
Acetabularia acetabulum is a single-celled green alga that in its vegetative state is morphologically differentiated into a basal rhizoid and an axially elongated stalk, which bears whorls of branching hairs. The single diploid nucleus resides in the rhizoid.
A workshop hosted by the South African Journal of Science aimed at postgraduate students and early career researchers with little or no experience in writing and publishing journal articles.
A review of the growth of the Israel Genealogy Research Association Database Collection for the last 12 months. Our collection is now passed the 3 million mark and still growing. See which archives have contributed the most. See the different types of records we have, and which years have had records added. You can also see what we have for the future.
2024.06.01 Introducing a competency framework for languag learning materials ...Sandy Millin
http://sandymillin.wordpress.com/iateflwebinar2024
Published classroom materials form the basis of syllabuses, drive teacher professional development, and have a potentially huge influence on learners, teachers and education systems. All teachers also create their own materials, whether a few sentences on a blackboard, a highly-structured fully-realised online course, or anything in between. Despite this, the knowledge and skills needed to create effective language learning materials are rarely part of teacher training, and are mostly learnt by trial and error.
Knowledge and skills frameworks, generally called competency frameworks, for ELT teachers, trainers and managers have existed for a few years now. However, until I created one for my MA dissertation, there wasn’t one drawing together what we need to know and do to be able to effectively produce language learning materials.
This webinar will introduce you to my framework, highlighting the key competencies I identified from my research. It will also show how anybody involved in language teaching (any language, not just English!), teacher training, managing schools or developing language learning materials can benefit from using the framework.
Macroeconomics- Movie Location
This will be used as part of your Personal Professional Portfolio once graded.
Objective:
Prepare a presentation or a paper using research, basic comparative analysis, data organization and application of economic information. You will make an informed assessment of an economic climate outside of the United States to accomplish an entertainment industry objective.
2. THE NATURE OF ACCOUNTING THEORY
APPROACH
2
The primary objective of accounting theory is to provide
a basis for the prediction and explanation of accounting
behavior and events.
No single comprehensive theory of accounting exists at
present.
3. 3
theory defined as:-
“a set of inter-related constructs (concept), definitions and
propositions (suggestions) that present a systematic view of
phenomena by specifying relations among variables with the
purpose of explaining and predicting phenomena”.
4. 4
The GeneralAcceptance ofAccounting Principles
(GAAP) guide the acctg profession to choose acctg
techniques and prepare FS considered to be good
acctg practice.
The GAAP are subjected to the reexamination & critical
analysis with regards to the changes in environments,
values and information needs.
5. 5
Changes in principles may occur as a result of providing
solutions to emerging accounting problem and
formulating a theoretical framework.
Provide a rationale for what accountants do or expect to
be doing.
The process of theory construction should be completed
by theory of verification or validation.
6. 6
Machlup (1955) defined the process:…
The statement implies that the theory should be subject to a
logical or empirical testing to verify its accuracy.
If the theory is mathematically based, the verification should be
predicted based on logical consistency.
If the theory is based on the physical and social phenomena, the
verification based on the deduced events & observations in
the real world.
7. 7
Therefore, acctg theory should result from both
process of theory construction and verification.
A given theory should explain and predict the acctg
phenomena.
If a given theory is unable to produce the expected
results, it is replace by a better theory.
9. Traditional approaches to accounting
theory
9
1. Non-theoretical, practical or pragmatic (informal)
2. Theoretical:
a. Deductive approach
b. Inductive approach
c. Ethical approach
d. Sociological approach
e. Economic approach
10. 1. Non-theoretical approaches (P&A)
10
The pragmatic approach:
consists of the construction of a theory that conforms to real-
world practices and suggests practical solutions
Means “that property which fits something to serve
or facilitate its intended purposes”
“usefulness to users & relevance for decision making”
11. 11
The authoritarian approach:
The formulation ofAT, which is employ primarily by
professional organization, consists of issuing
pronouncements for the regulation of accounting practices
12. 12
Both approach assume AT (pragmatic & authoritarian) & the
resulting technique must be predicted on the basis ultimate
use of financial reports, if accounting is to have useful
function.
A theory without practical consequence is a bad theory.
13. 13
However;
The approaches have been largely unsuccessful in reaching
satisfactory conclusions in their attempt to construct anAT.
For example; balance sheet approach & profit-oriented;
pragmatic & authoritarian approach absence on theoretical
foundation.
14. 2. The Deductive Approach
14
Constructions of AT theory begins with basic propositions &
proceeds to derive logical conclusions about the subject
under considerations.
Move from general to particular
15. 15
Steps used to derive the deductive approach
1. Specifying the objectives of financial statements
2. Selecting the‘postulates’ of accounting
3. Deriving the‘principles’ of accounting
4. Developing the‘techniques’ of accounting
16. 3. The Inductive Approach
16
The construction of theory begins with observations &
measurements & moves toward generalized conclusions.
Lead to Positive approach
17. 17
Involved four stages, i.e. :-
1. Recording all observations
2. Analysing and classifying these observations to
detect recurring relationships
3. Inductive derivation of generalisations and
principles of accounting from observations that
depict recurring relationships
4. Testing the generalisations
18. Comparing deductive and inductive
approaches
18
In the inductive approach, the truth or falsity of the propositions does not
depend on other propositions, but must be empirically verified
In the inductive approach the truth of the propositions depends on the
observation of sufficient instances of recurring relationships
Accounting propositions that result from inductive inference imply
special accounting techniques only with high probability
Accounting propositions that result from deductive inference lead, on
the other hand, to specific accounting techniques with certainty (confidence)
19. 19
Note;
The general proposition formulated through inductive process
Principles & technique from deductive process
e.g.; Paton (deductive theorist) & Littleton (Inductive theorist)
20. 4. The Ethical Approach
20
The basic core consists of the concepts of fairness, justice,
equity and truth
In general, the concept of fairness implies that accounting
statements have not been subject to undue influence or bias
Justice; equitable treatment of all interested parties
Truth; with true & accurate accounting without
misreprsentation
21. 21
For example:
The committee on auditing procedures refers to concept of
‘fairness of presentation’ as:
1. conformity with GAAP
2. disclosure
3. consistency
4. comparability
22. 5. The Sociological Approach
22
Emphasizes the social effects of accounting
techniques
According to this approach, a given accounting
principle or technique is evaluated for acceptance on
the basis of its reporting effects on all groups in
society
Implies that accounting data will be useful in making
social welfare judgments
23. 23
Evolution to new accounting sub discipline, socioeconomic
accounting
The main obj encourage business to account their impact on
business activities on social environment through
measurement, internalization, & disclosure in their FS.
Probably play a major role in future formulation of AT.
24. 6. The Economic Approach
24
Emphasizes controlling the behavior of
macroeconomic indicators that result from the
adoption of various accounting techniques
The choice of different accounting techniques
depends on their impact on the national economic
good
Accounting policies and techniques should reflect
‘economic reality’, and the choice of accounting
techniques should depend on ‘economic
consequences’
e.g. LIFO method during continuing inflation
period
25. The Eclectic (combination) Approach to the Formulation of
Accounting Theory
25
In general, the formulation of accounting theory and
the development of accounting principles have
followed an eclectic approach.
a combination of approaches, rather than just
one approach.
28. 28
Acctg standards dominate accountant’s work.
Standards are being constantly changed, deleted and/or
added.
They provide practical & handy rules for the conduct of the
accountant’s work.
They generally accepted as firm rules, backed by sanction for
nonconformity.
29. 29
Accounting standards usually consist of three parts:
1. a description of the problem to be tackled
2. a reasoned discussion on ways of solving the problem, then,
3. in line with the decision or theory, the prescribed solution
30. Why Examine Theories of Regulation
30
Better placed to understand why some accounting
prescriptions become part of legislation while others do not
accounting standard-setting is a very political process
while some proposed requirements may be technically sound
and logical, they may not be mandated due to political
‘power’ or influence of some affected parties
31. Theories to Explain Regulation
31
Public interest theory
Capture theory
Economic interest group theory (private interest theory)
33. 1.Public Interest Theory
33
Regulation put in place to benefit society as a whole rather
than vested interests
regulatory body considered to represent interests of the
society in which it operates, rather than private interests of
the regulators
assumes that government is a neutral arbiter
34. Criticisms of Public Interest Theory
34
Critics question assumptions that economic markets operate
inefficiently if unregulated
question the assumption that regulation is virtually costless
others question assumption of government neutrality
argue that government will only legislate and groups will
only lobby for regulation if it will increase their own wealth
35. 35
The regulated seeks to take charge (capture) the regulator
seek to ensure rules subsequently released are advantageous
to the parties subject to regulation
although regulating initially in the public interest, difficult for
regulator to remain independent
36. 2. Capture of Accounting Standard-
Setting
36
Walker (1987) analysed capture of Australian standard-setting
through theASRB.Argued that:
the accounting profession lobbied before the board
established to ensure no independent research capability,
no academic as chair, to receive admin officer not a
research director
priorities only set after consultation with AARF
ASRB fast-tracked AARF submissions but not others
majority of board membership were members of the
accounting profession
37. Criticisms of Capture Theory
37
No reason to suggest that regulated industry the only
interest group able to influence the regulator
No reason why regulated industries only able to
capture existing agencies rather than procure the
creation of an agency
No reason why regulated couldn’t prevent creation of
the regulatory agency
38. 3. Economic Interest Group Theory
38
Assumes groups will form to protect particular
economic interests
groups are often in conflict with each other and will
lobby government to put in place legislation which will
benefit them at the expense of others
no notion of public interest inherent in the theory
regulators (and all other individuals) deemed to be
motivated by self interest
39. Economic Interest Group Theory –
cont….
39
The regulator is not a neutral arbiter but is seen as
an interest group itself
regulator motivated to ensure re-election or
maintenance of its position of power
regulation serves the private interests of politically
effective groups
those groups with insufficient power will not be able to
effectively lobby for regulation to protect its own
interests
40. Examples - Application to Accounting Standard-
setting
40
Industry groups may lobby to accept or reject a particular
accounting standard
eg. insurance oil & gas industry
large politically sensitive firms found to lobby in favour of
general price level accounting in US (led to reduced profits)
accounting firms lobbying to protect their own interests
41. Accounting Regulation as an output
of a Political Process
41
The view that financial accounting should be objective,
neutral and apolitical can be challenged
will inevitably be political as it affects wealth distribution
within society
standard-setters encourage affected parties to make
submissions on drafts of proposed standards
42. 42
If standard-setters give consideration to views in submissions,
accounting standards and therefore financial reports are the
result of various social and environmental considerations
tied to the values, norms and expectations of the society in
which standards are developed
questionable whether financial accounting can claim to be
neutral and objective
43. 43
Compliance with accounting standards usually seen to
indicate financial statements are‘true and fair’ ???
can accounts based upon standards determined from various
economic and social consequences be deemed to be‘true’?
Users may not be aware that financial reports are the
outcome of various political pressures
should regulators consider preparers’ views given that
standards are designed to limit what preparers do?
44. Influence of the Accounting Profession on
Standards
44
Standards that do not have support from accountants and/or the
business community could result in:
1. lobbying by particular interest groups
2. non-compliance
3. refusal of companies to contribute to or participate in the standard-setting
process
4. threat of governmental regulatory intervention
It is in the AARF’s best interests to issue standards that are accepted
by the business community and the accounting profession
45. Private-sector Regulation of Accounting
Standards
45
Advantages
TheAASB is responsive to various constituents
TheAASB attracts as members people who possess the
necessary technical knowledge to develop and implement
alternative measurement and disclosure systems
TheAASB is successful in generating a reasonable amount of
response from its constituency base and in responding to this
input
46. 46
Disadvantages
TheAASB lacks statutory authority and faces the challenge of
being overridden by government
TheAASB has been accused of lacking independence from
dominating interests, such as the accounting profession
TheAASB has often been accused of responding too slowly to
major issues that are of crucial importance to some of its
constituents
47. 47
Arguments in favour:
TheASIC acts as‘creative irritant’ and as a catalyst for change,
since the private sector and market forces do not provide the
leadership necessary to effect such change
The structure of securities regulation established by the 1991
Corporations Law serves to protect investors against perceived
abuses
48. 48
TheASIC is motivated by the desire to create a level of public
disclosure deemed necessary and adequate for decision
making
Unlike theAASB, theASIC is secured greater legitimacy
through its statutory authority
Private-sector objectives may sometimes contradict the public
interest.
49. 49
Arguments against:
There is a high corporate cost for compliance with
government regulation of information
Bureaucrats have a tendency to maximise the total budget of
their bureau
There is the danger that standard setting may become
increasingly politicised
Government regulation backed by police power may hinder
the conduct of research and experimentation of accounting
policy and is not essential to achieving standardisation of
measurement
50. Accounting Standards Overload
50
Too many standards
Too detailed standards
No rigid standards, making selective application difficult
General-purpose standards fail to provide for differences in preparers’,
users’ and CPA’s needs
General-purpose standards fail to provide for differences between:
public and non-public entities
annual and interim financial statements
large and small enterprises
credited and non-audited financial statements
Excessive disclosures and/or complex measurements
51. Effects of Accounting Standards
Overload
51
Accountants may lose sight of their real jobs because of the
excessive data required to comply with standards
Audit failures may result because the accountant may forget to
perform basic audit procedures
The proliferation of complex accounting regulations may lead to
non-compliance
52. Solutions to the Standards Overload
Problem
52
TheAICAP Special Committee on Accounting Standards
evaluated the following possible approaches:
• no change
• a change from the present concept of a set of unitary GAAP
for all businesses, to two sets of GAAP
• change GAAP to simplify application to all business
enterprises
• establish differential disclosure and measurement alternatives
53. 53
• a change in CPAs’ standards for reporting on financial statements
• an alternative to the GAAP as an optional basis for presenting
financial statements
55. 55
The subject matter of positive approach is:
existing accounting practices
management’s attitudes towards those practices
Proponents of the positive approach argue that the techniques can
be derived from and justified on the basis of their tested use, or
that management plays a central role in determining the techniques
to be implemented
56. 56
• Basic subject matter:
– information is an economic commodity
– acquisition of information amounts to a problem of economic
choice
• Accounting information is evaluated in terms of its
ability to improve the quality of the optimal choice in a
basic-choice problem that must be resolved by an
individual
• The information system with the highest expected
utility is preferred
57. Positive theory of accounting
57
The positive theory of accounting is based on the
propositions that managers, shareholders and
regulators/politicians are rational and attempt to maximize
their utility
Their choice of accounting policy rests on comparing the
relative costs and benefits of alternative accounting
procedures so as to maximize their utility
59. The central ideal of the positive
approach
59
1. To enhance the reliability of prediction, based on the
observed smoothed series of accounting numbers
along a trend considered best or normal by
management
2. To reduce the uncertainty resulting from the
fluctuations of income numbers in general and the
reduction of systematic risk in particular by
reducing the covariance of the firm’s returns with
market returns
60. The central problem in positive
theories
60
• The central problem is to determine how accounting
procedures affect cash flows, and therefore management’s
utility
• Theoretical assumptions guiding resolution of the problem
are:
– the agency theory evolves to a view of the firm as a‘nexus of
contracts’
– given this‘nexus of contracts’ perspective, the role of accounting
information is to monitor and enforce these contracts to reduce the
agency costs of certain conflicts of interest
61. The agency problem (dominant theory in positive
approach)
61
The basic agency problem is enriched by different
options concerning:
1. the initial distribution of information and beliefs
2. the description of the number of periods
3. the description of the firm’s production function in terms
of:
amount of capital supplied by the principal
agent’s level of effort
an exogenously determined, uncertain-state realisation
62. 62
4. the description of the feasible set of actions from which
the agent chooses
5. the description of the labour and capital markets
6. the description of the feasible set of information
systems
7. the description of the legal system that specifies the
type of behavior that can be legally enforced, and what
is admissible evidence
8. the description of the feasible set of payment systems
63. 63
9. the description of the solution to the basic agency
model
10. the role of self-interest
11. the solution concept and the nature of optimality
64. Income smoothing
64
Propositions on income smoothing
1. The criterion a corporate management uses to select
among accounting principles is the maximisation of its
utility or welfare
2. The utility (effectiveness) of management increases with:
job security
the level and rate of growth in management’s
income
the level and rate of growth in the corporation’s size
65. 65
3. The achievement of the management goals stated in
proposition to depends in part on the stockholders’
satisfaction with the corporation’s performance
4. Stockholders’ satisfaction increases with the average rate of
growth in the corporation’s income
66. Gordon’s Theorem
66
Given that Gordon’s four propositions are true,
management would within the limits of its power:
1. Smooth (persuasive) reported income
2. smooth the rate of growth in income
67. Motivations for smoothing
67
According to Heyworth, motivations for smoothing
include improvements of relations with creditors,
investors and workers, as well as dampening of business
cycles through psychological processes
Beidelman’s two motivating reasons:
1. a stable earnings stream is capable of supporting a higher
level of dividends, having a favourable effect on the value of
the firm’s shares
2. smoothing counters the cyclical nature of reported earnings
and reduces the correlation of a firm’s expected returns with
returns on the market portfolio
68. Constraints leading to smoothing
68
Three constraints are presumed to lead managers to
smooth:
1. the competitive market mechanisms, which reduce options
available to management
2. the management compensation scheme, which is linked
directly to the firm’s performance
3. the threat of management displacement
69. Dimensions of smoothing
69
Barnea and others distinguished between three
dimensions:
1. smoothing through events’ occurrence and/or recognition
2. smoothing through allocation over time
3. smoothing through classification
70. The accounting choice
70
The accounting choice rests on variables that
represent management’s incentives to choose
accounting methods under bonus plans, debt
contracts and the political process
There are three hypotheses:
1. The bonus plan hypothesis maintains that managers of
firms with bonus plans are more likely to use
accounting methods that increase current-period
reported income
71. The accounting choice (cont’d)
71
2. The debt/equity hypothesis maintains that the higher
the firm’s debt/equity, the more likely managers are
to use accounting methods that increase income
3. The political cost hypothesis maintains that large firms
rather than small firms are more likely to use
accounting choices that reduce reported profits
72. We have finished
1. Non theoretical approach
2. RegulatoryApproach
3. PositiveAccountingTheory
4. ………………………………
72
74. 74
Most traditional approaches accounting theory construction
have failed to consider user behavior in particular and
behavioral assumptions in general
The behavioral approach to accounting theory formulation
emphasizes the relevance to decision-making of the
information being communicated, and of the individual and
group behavior caused by the information being
communicated
The behavioral approach to accounting theory formulation is
concerned with human behavior as it relates to accounting
information and problems
75. 75
A new multidisciplinary area in the field of accounting
has been conveniently labeled‘behavioral accounting’
The basic objective of behavioral accounting is to
explain and predict behavior in all possible accounting
contexts
76. Behavioural effects of accounting
information
76
A more recent and exhaustive attempt by Dyckman, Gibbins
and Swieringa illustrates the nature of studies of the
behavioral effects of accounting information
We may divide these studies into five general classes:
1. adequacy of disclosure
2. usefulness of financial statement data
3. attitudes about corporate reporting practices
4. materiality judgements
5. linguistic effects of alternative accounting procedures
77. (1) Adequacy of disclosure
77
Three approaches were used to examine the adequacy of
disclosure:
1. the first examined the patterns of use of data from the
viewpoint of resolving controversial issues concerning the
inclusion of certain information
2. the second examined the perceptions and attitudes of different
interest groups
3. the third examined the extent to which different information
items were disclosed in annual reports and the determinants of
any significant differences in the adequacy of financial
disclosure among companies
78. 78
The research on disclosure adequacy and use showed:
general acceptance of the adequacy among financial statements
recognition that the differences in disclosure adequacy among
financial statements are due to such variables as company size,
profitability, and size and listing status of the auditing firm
79. (2) The usefulness of financial statement data
79
Two approaches were used to examine the usefulness of
financial statement data:
1. the first examined the relative importance of the investment
analysis of different information items to both users and
preparers of financial information
2. the second examined the relevance of financial statements to
decision-making, based on laboratory communication of
financial statement data in terms of readability and meaning to
users in general
80. 80
The overall conclusions of these studies were
that:
some consensus (agreement) exists between users and
preparers regarding the relative importance of the
information items disclosed in financial statements
users do not rely solely on financial statements when
making their decisions
81. (3) Attitudes about corporate reporting
practices
81
Two approaches were used to examine attitudes about corporate
reporting practices:
1. the first examined preferences for alternative accounting
techniques
2. the second examined attitudes about general reporting issues,
such as how much information should be available, how much
information is available, and the importance of certain items
82. 82
These research items showed the extent to which some
accounting techniques proposed by the authoritative bodies
are accepted, and also brought to light some attitude (stance)
differences among professional groups concerning reporting
issues
83. (4) Materiality judgments
83
Two approaches were used to examine materiality
judgments
1. the first examined the main factors determining the
collection, classification and summarisation of accounting
data
2. the second focused on what items people consider to be
material, and sought to determine the degree of
difference in accounting data that is required before the
difference is perceived as material
These studies indicated that several factors appear to
affect materiality judgements, and that these
judgements differ among individuals
84. (5) Linguistic effects of accounting data
and techniques
84
Linguistics and accounting have many similarities
Belkaoui argues that accounting is a language and that
according to the Sapir-Whorf hypothesis its lexical
(relating to words) characteristics and grammatical rules will
affect both the linguistic and the non-linguistic
behavior of users
85. Linguistic effects of accounting data and techniques
(cont’d)
85
Four propositions derived from the linguistic relativity
paradigm to conceptually integrate the research
findings of the impact of accounting information on
the user’s behavior, are as follows:
1. users who make certain lexical (relating to word)
distinctions in accounting are enabled to talk and/or solve
problems that cannot be solved by users who do not
2. users who make certain lexical distinctions in accounting
are enabled to perform tasks more rapidly or more
completely than those who do not
86. Linguistic effects of accounting data and techniques (cont’d)
86
3. users who possess the accounting (grammatical) rules are
more predisposed (liable) to different managerial styles or
emphases than those who do not.
4. accounting techniques may tend to facilitate or render more
difficult various managerial behaviors on the part of users.
87. Reasons for cross-cultural research
87
Cross-cultural research is needed in
accounting for the following five reasons:
1. it would establish the boundary conditions for
accounting models and theories
2. it would enable evaluation of the impact of
cultural and ecological factors on behaviour in
accounting
88. Reasons for cross-cultural research (cont’d)
88
3. although variables are often generally confounded
(confuse), the confounding is not complete, as a few
‘culturist’ may present deviant (abnormal) cases
4. cultures act as‘natural grain-experiments’ by being
high or low on variables of particular interest
5. cultures determine aspects of psychological
functioning
91. A paradigm is a fundamental image of the subject matter of
science.
It serve to define what should be asked, & what rules should be
followed in interpreting the answer obtained.
The paradigm is the broadest unit of consensus within a science &
serves to differentiate one scientific community from another.
It subsumes, defines, & interrelates the exemplars, theories,
methods, & instruments that exists within it.
92. The value of the predication of a theory to users influences its
uses, it does not solely determined the success
Because cost of errors & the implementing vary, several theories
about the phenomena can exist simultaneously for predictive
purposes.
However, only one will generally accepted by theorist.
In accepting one theory over another, theorist will be influenced
by the intuitive appeal of the theory’s explanation for the
phenomena & the range of phenomena it can explain & predict as
well as by the usefulness of the predictions to users.
93. AAA publication of Statement of AccountingTheory &
Theory Acceptance;
1. The anthropological / inductive paradigm
2. The true-income / deductive paradigm
3. The decision usefulness / decision-model paradigm
4. The decision usefulness / decision – maker/ aggregate –
market- behavior paradigm
5. The decision usefulness / decision-maker/ individual user
paradigm
6. The information / economic paradigm
94. 1. The anthropological / inductive
paradigm
Concern for inductive approach to construction of accounting
theory & a believe the value of accounting practice.
The research concern on significance of historical cost in term of
accountability & decision making.
Those who adopt this paradigm, the basic subject mater is;
Existing accounting practice
Management attitude towards those practice (management plays a
central role in determined technique to be implemented)
95. Four theories under this paradigm
I. Information economics
II. The agency model
III. The income smoothing / earning management hypothesis
IV. The positive theory of accounting
96. 2. The true-income / deductive paradigm
The basic subject matter is a concept of ideal income based on
some other method than the historical cost method.
It generally employed analytic reasoning to justify the
construction of an accounting theory or to argue the advantage of
particular asset-valuation / income determination model other
than historical-coat accounting.
The theories;
I. Price level adjusted accounting;
II. Replacement –cost accounting;
III. Deprival-value accounting
IV. Net realizable value accounting
V. Present-value accounting
97. 3. The decision usefulness / decision-model paradigm
Rely on empirical technique to determined predictive ability of
selected items of information.
Two related theories;
i. Decision models associated with business decision making
(EOQ, Capital Budgeting etc.)
ii. Deals with different economic events that may effect a going
concern.
98. 4. The decision usefulness / decision – maker/ aggregate – market- behavior
paradigm
Important relationship between accounting data and market
behavior.
Aggregate market behavior & accounting variables is based on
theory market efficiency.
Those theory include;
I. The efficient market model
II. The efficient market hypothesis
III. The capital asset pricing model
IV. The arbitrage pricing theory
V. The equilibrium theory of option pricing
99. 5. The decision usefulness / decision-
maker/ individual user paradigm
Is the study of how accounting functions & reports influence the
behavior of accountants & non accountants.
The basic subject matter is the individual-user response to accounting
variables.
The objective is to understand, explain & predict human behavior
within an accounting context.
The theories include;
I. Cognitive relativism in accounting
II. Cultural relativism in accounting
III. Behavioral effect of accounting information
IV. Linguistic relativism in accounting
100. 6. The information / economic paradigm
The usefulness of information to the future development of
accounting theory.
The basic subject matter is;
Information is an economic commodity
The acquisition of information amounts to a problem of economic
choice
Generally employ analytic reasoning based on statistical decision
theory & economic theory of choice.
Central to the information/economic paradigm is the traditional
economic assumption of consistent, rational choice behavior.
102. 102
As a conclusion;
No single governing theory of acctg is rich enough to
encompass the full range of user-environment specifications
effectively;
Their existence in accounting literature not a theory of
accounting but collections of theories which can be array
over the differences in user environment specification.
103. To test the theory, according to Propper;
103
1. Internal consistency
2. Logical form (empirical or scientific theory)
3. Survive of various test
4. Demands from practice
No necessarily adopt the same steps; theorists ???