HI6025

Critique

Of

Half a Defence of Positive Accounting Research

Author Name:
Abstract:

Critique being a systematic way of objectively reviewing important parts of research, highlights

both its strengths and weaknesses and even its applicability. This document contains critique

literature on the Half a Defence of Positive Accounting Research which is presented by Paul V

Dunmore. The presented article offered an accounting concept which explains the importance of

Positive Accounting Research and its inference on todays the practical life.

Keywords: literature critique, positive accounting, research methods

Contents

Abstract:.......................................................................................................................... 2
Introduction:..................................................................................................................... 4
Critique Literature on Research.............................................................................................. 4
Research Questions...................................................................................................... 8
Theoretical Framework................................................................................................. 8
The Significance and Limitation of the Article...............................................................9
Bibliography................................................................................................................ 11
Introduction:

This article named Half a Defence of Positive Accounting Research has been presented by Mr.

Paul V Dunmore in which he is describing the prominence of Positive Accounting Research and

its inference on todays the practical life.

Briefly explaining, the article is inspecting the importance of Positive Accounting in the todays

commercial world and explains how it is adding values in the efficiency and effectiveness of the

entities.

The key purpose of this assignment is to post a critical analysis over the arguments stated in the

literature article. Therefore, critical analysis should be comprehensively discriminated from

critiques, as critiques would have been initiated for identifying the negative points of a definite

thing. Particular structure is there that needs to be followed for making this assignment which

contains summary, specific research questions, given theoretical framework and the identified

potential limitations which has to be allied with this given article. Consequently, all of these parts

are needed to be done as per their requirements simultaneously.

Critique Literature on Research

There has been made some predictions on the basis of this article in substance. It has been

presented to combat with the stance that the behavior as well as intensity of the financial and

capital markets cannot be predicted. The article has highlighted the importance of Behavioral

Finance in terms of predicting (Beneish, 2011). The author of the article has exhibited their

critiques on the theory of Efficient Market Hypothesis (EMH). The article has emphasized the

importance of Positive Accounting Theory and raised the theory to be used accordingly in contrast

to EMH. (Cheng, 2015)

Following are the strategic findings of the authors:

The presented theory attempts to make worthy and productive predictions in the real world

proceedings and drag its importance in the directions of accounting transactions. In

obvious sense, it is not important to find out, in accounting, what should be done, instead,

it is more considerable to identify and clear the main cause or idea behind every definite

event. Furthermore, accounting theory is more likely to be predicted the unparalleled

events that may be accompanying with a business. Therefore, the utilization of PAT has

been emphasized, in order to predict the ability which needs to be maintained at a certain

rate of an organization in an extremely competitive market. Having a strong and complete

idea about financial capability of the firm put finance managers at ease (Warfield, 2015).

Bundles of arguments have been seen in this capacity and should therefore, ascertain their

growth on the basis of those stated predictions. Though, the findings made by Chen et al

were totally opposite. To that degree, it is not possible for an investor even for the financial

officials to predict the market and the unprecedented events with the application of theories

like Positive Accounting. In fact, more sophisticated techniques such as Altman A-Score

come to nothing predicting the productivity of an organization in tough or rough times.

Decision making is of very importance keeping an organization in consideration, and this is

what that has been described with great attention through this literature article having

explanation about Positive Accounting aspects. Decision making is essential for every

single company or organization. The more transparent and vivid the decision-making

aspect is, the more productivity could have been summated to the company, particularly in

the long run. The article has also launched an idea that the state of the prediction depends

only on useful accounting principles and standards used by companies to handle their well-

being on the market. This means that more efficient and more beneficial for technical and
accounting principles, the more productive forecast for the company. Rules and policies

Useful accounting is very effective in managing welfare the affected companies. After a

critical and research later this argument, it appears that the argument is perfectly correct.

This same idea was revealed by Jiraporn et al. (2014) in their study, because as per their

recommendations, in their most recent economy crisis, International Financial Reporting

Standards (IFRS) were highly recommended by most of the financial consultants and

practitioners and suggested to ignore the idea of Generally Accepted Accounting Principles

(GAAP) like totally. International Financial Reporting Standards (IFRS) have been aimed

in a more ethical manner that describes the importance of managing the financials of any

company in more reasonable manners. The article has emphasized over the utilization of

such an accounting treatment, through which the company can add value in their

productivity and within their goodwill in an effective and efficient manner. The core

emphasis of this article was over the element of endurance of the companies, as compared

to increasing their productivity or profitability. According to the main crux of the article,

while using PAT, companies want to make the most of their prospects for survival rather

than exploiting the shareholders equity for becoming more distinctive in the Cosmos and

in front of the eyes of their stakeholders. This idea is not fair enough at all, because the key

objective with a proper clear vision, of every organization is to maximize the potential for

their stakeholders, and provide them enough opportunities that can easily enhance their

interest for up righting the productivity of that company. However, the idea of PAT totally

backs by Kasanen, Kinnunen and Niskanen (2016), as according to them the current trend

has been referred as the era of industrialization and technological efficiency in which

organizations have to create dissimilar opportunities for their shareholders through which

they can increase their competiveness and productivity. This create a strong connection by
increasing the competitiveness that help a lot in survival of a company. With the help of

this article one thing is clearly displayed that organizations are not recognized with the net

income earned and the revenue generated during their reporting periods in fact they are

recognized with the contracts made and projects that they have undertaken in a specific

scenario ( (Leuz, 2013). The idea is not precise, because organizations are projected to

enhance their financial potential and reduce their operational expenses in a proficient

manner. Similar concept had been revealed by (Milne, 2012), because according to them

every single organization which is operational, has a been aimed at increasing their

financial potential, and maximize their earnings in a well-organized manner effectively and

efficiently. The study also revealed that determined for the income efficiency does not

mean that they need to undertake every single project into their consideration. There has

been found a very strong relation and connection between the efficiency of a company, and

the projects or contracts they have undertaken. The more organized the undertaking

projects are, the higher will be the capacity of a company to enlarge their economic and

strategic potential (Peasnell, 2011). In connection to the last argument generated which are

related to projects and contract, Profit Before Tax (PAT) has a great capacity to minimize

the cost of the contracts respectively. This is because PAT helps an organization enabling to

put their interest only in those projects or contracts that can in reality upsurge their

financial potentials by utilizing and minimizing the proposed cost of operations taken.

Briefly speaking, it can be said that PAT slopes the foremost behavior and workability of

the companies towards their hard-core financial achievements and aims determined.
Research Questions
For making research report, the presence of problematic research questions is very important.

Because, it has been seen that no research report can be executed completely without though

provoking the research questions. This same concept is applicable with this given article and hence

is defined as follows:

How PAT can be helpful for making strong the financial structure of the organizations?
How PAT can be helpful for making strong the strategic structure of the organizations?
How PAT can assist the companies to sustain in current competitive environment?
Why, all over the universe, the concept of PAT is growing rapidly for the companies?
What is the connection between PAT and the Accounting Policies of the management in

any company?

The scope of these research questions is much wider and broad in nature which can never be

answered without complete study and research. Therefore, the researcher has used a flawless

technique to answer the them systematically and completely.

Theoretical Framework
As per definition, theoretical framework is defined as a structure which can hold or support any

specific theory for the purpose of studying it and sheer analysis. The theoretical framework has a

propensity to define and appraise the research problems under a specific study ( (Subramanyam,

2010). Every research report that consist of Quantitative Method and Hypothesis has the factor of

Theoretical Framework triggered with the same. The same is applicable with this specific research

study as well. The article has estimated the position of PAT in terms of strengthening the financial

and strategic structure of the company, and how PAT can help the companies to maximize their

sustainability in a competitive market. The Influence of the PAT has been analyzed on the financial

and strategic well-being of the company, with its sustainability aspect. The article has fervent with
limited word counts on its theoretical framework, which is not an efficient sign from the

standpoint of a research.

The Significance and Limitation of the Article

This particular portion of the assignment is of great important from the viewpoint of this research.

As the research has been conducted on of the very important concepts which are related to

Accounting Management, consequently, its importance is very high ( (Koh, 2013). The level of

significance relating to this research is very in much wider scope, because it has the ability to fulfil

the appetite of a wider range of different readers.

Primarily, the research can be used by the companies who are looking forward to encompass PAT

with their workability factor. Secondly, it is mutually beneficial for the researchers who are likely

to conduct research on these matching themes. The researcher has used Quantitative Research

Method (QRM) for the examination of the PAT, which is undeniably right, and has its justification

because it is an accounting based research. However, the research design that have been used by

the research is not that effective. The research design pertaining to the research is Exploratory in

which the researcher accepts that the research had not been conducted earlier, and it will be a

masterpiece in the present economic scenario. However, it is not right, there are confident studies

that have been conducted in the same domain and dimensions such as the studies. It is suggested to

use causal research design in its place for this research, as the research strategy will help the

research to inspect the reason and effect relationship among the insinuation of PAT and its

influence over the elements conversed in the theoretical framework.

Conclusion

The entire article is grounded on the permanence of PAT, and its application over the functions of

companies and organizations. The research has been comprised on some very interesting

arguments that pertains to PAT and refer to its core importance. From this entire analysis and

research study, it is found that PAT will help the companies for being able to maximize their

sustainability together with maximizing their shareholders impartiality in a professional manner.

Furthermore, the research has highlighted on undertaking the research contracts and projects into

consideration which helps a company to maximize its potential in that aspects. In short, the main

points elevated in this article pertaining to PAT are absolutely right, and most of the organizations

across the globe are taking benefits with this same concept.
References

Beneish, 2011. Earnings management: A Perspective, Managerial Finance, 27(12), pp 3-

17.. s.l.:s.n.

Cheng, 2015. Equity incentives and earnings management. The accounting review,

80(2), pp.441-476. s.l.:s.n.

Koh, 2013. On the association between institutional ownership and aggressive corporate

earnings management in Australia. The British Accounting Review, 35(2), pp.105-128..

s.l.:s.n.

Leuz, C. a. W. P., 2013. Earnings management and investor protection: an international

comparison. Journal of financial economics, 69(3), pp.505-527.. s.l.:s.n.

Milne, 2012. Positive accounting theory, political costs and social disclosure analyses: A

critical look. Critical perspectives on accounting,13(3), pp.369-395. s.l.:s.n.

Peasnell, 2011. Accrual management to meet earnings targets: UK evidence pre-and

post-Cadbury. The British Accounting Review, 32(4), pp.415-445.. s.l.:s.n.

Subramanyam, 2010. The pricing of discretionary accruals. Journal of accounting and

economics, 22(1), pp.249-281.. s.l.:s.n.

Warfield, 2015. Equity incentives and earnings management. The accounting review,

80(2), pp.441-476.. s.l.:s.n.