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 and the 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 costin 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

Normative theories
Decision usefulness
Accounting system of company X

Prediction model of user

Decision model of user

The decision process

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. 2. 3. 4. 5. 6.

Reality as a concrete structure Reality as a concrete process Reality as a contextual field of information Reality as a symbolic discourse Reality as a social construction Reality as projection of human imagination

Different perspectives

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

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