accounting theory

2.  A theory is a set of assumptions,
propositions, or acceptable facts that provide
a plausible or rational explanation regarding
the relationships between events.
 The construction of a theory is a process that
requires assumptions that can allow
generalization , which can be acceptable and
easily understood

3.  It is the provision of information about the
reporting entity’s financial performance and
financial level(position) that is useful to users
to asses the stewardship work of
agents(management) and make economic
decisions

4.  Accounting theory is the basic assumptions,
definitions, principles and concepts that
underlie the financial reporting applicable to
entities when preparing their accounting
reports.
 It provides a logical framework for accounting
practice
 Can also explain the reason behind existing
rules and procedures of reporting.

5.  The accounting theory is concerned with
provision of both financial and non-financial
information for decision makers
 The level of dynamism in the accounting
environment has increased the need to apply
the accounting theories.

6.  The basic objective of accounting theory is to
provide a basis for prediction and explanation
of accounting events and behavior
 There is no single comprehensive theory on
accounting
 Accounting is viewed on different levels as a
language, ideology, information system,
historical record and current economical
reality as well as a futuristic view of the
organization.

7.  Conceptual frameworks
 Hypothesis and theories
 Accounting legislations
 Concepts

8.  Inputs to policy making
 Political factors
 Economic conditions
 Business activities
 Dynamic accounting environment
 Complexity in the practice of accounting
practice.

9.  Transaction concept- it is the exchange of
assets from one entity to another or
exchange of one asset for another within the
same entity
 Accounting period Concept- is the span of
time covered by a set of financial statements.
This period defines the time range over which
business transactions are accumulated into
financial statements, and is needed by
investors so that they can compare the
results of successive time periods

10.  Full disclosure concept- involves effective
summarization, classification, aggregation as
well as explanations with the object of
presenting a true and fair view of the
activities of an enterprise
 Realization concept- revenue is recognized as
it has been earned. The payments made for
assets and services can only be recognized
after they have been offered

11.  Cost-benefit concept- Optional information
should be included in the primary financial
statements only if the benefits of providing it
exceed the costs. The concept of cost-benefit
is applied generally in management
accounting when marginal analysis is done to
establish whether or not a project, product or
investment line is profitable to the
organization.

12.  Materiality concept-An item is material if
knowledge of the item would affect the
decision of an informed user, therefore, this
is a somewhat nebulous concept. All Material
items must be reported.
 This concept is more useful in the field of
auditing in accounting profession.
 An item can be material either in amount or
in nature.
Materiality in amount is relative to the size of the
amounts on a company’s financial report
 (e.g. $50,000,000 may not be material …)

13.  Stewardship role: the basic need for
accounting in its early development period.
The main role was to steward the owners
wealth and involves an orderly recording of
business transaction
 Financial reporting: this has come as an
advancement of the reporting framework and
was fully developed with the establishment of
limited companies as a result of company law

14.  Management Accounting: Developed in the
20th Century as a result of industrial
revolution with the primary function of
providing the entity’s management with
information necessary for decision making

15.  Financial Accounting Standards Board (FASB)-The
primary role is to establish and improve the
financial accounting and reporting standards that
foster reporting by non-governmental entities.
This is accomplished through comprehensive and
independent encouraging broad participation of
all stakeholders.
 International Financial Reporting Standards
(IFRS)- works to develop a single set of high
quality, understandable, enforceable and globally
accepted international financial reporting
standards (IFRSs) through its standard-setting
body, the IASB

16.  Governmental Accounting Standards Board (GASB)-
refers to the independent organization that
establishes and improves standards of accounting
and financial reporting for U.S. state and local
governments.
 Public Company Accounting Oversight Board
(PCAOB)- it is a nonprofit corporation established by
Congress to oversee the audits of public companies
in order to protect the interests of investors and the
public in the preparation of informative, accurate and
independent audit reports. Also oversees the audits
of broker-dealers, including compliance reports filed
pursuant to federal securities laws, to promote
investor protection.

17.  American Institute of Certified Public Accountants
(AICPA) -is the world’s largest member
association representing the accounting
profession, with nearly 386,000 members in 128
countries and a 125-year heritage of serving the
public interest. It’s members represent many
areas of practice, including business and
industry, public practice, government, education
and consulting. The AICPA sets ethical standards
for the profession and U.S. auditing standards for
audits of private companies, nonprofit
organizations, federal, state and local
governments.


18.  International Federation of Accountants. This
body sets the International Public sector
Accounting standards (IPSAS) which are to be
adhered to by all the government/Public
entities through the International Public
Sector Accounting Standards Board (IPSASB)

19.  Baker et al. (2015). The Historical Evolution from Accounting Theory
to Conceptual Framework in Financial Standards Setting. The CPA
journal, 85(8).
 CFI. (2019, March 21). Accounting ; Financial accounting Theory.
Retrieved from Corporate Financial Institute:
https://corporatefinanceinstitute.com/resources/knowledge/accounting/f
inancial-accounting-theory
 Eldon S. Hendriksen. (1965). Accounting Theory. Homwood-Illinois:
RICHARD D. IRWIN INC.
 Skyler, H. (2018, November 09). The History of Accounting Theory. .
Retrieved March 19, 2019, from Bizfluent: https://bizfluent.com/about-
5207102-history-accounting-theory.html