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 cost…in 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 CATEGORYASSUMPTION 1.Reality as a concrete structure 2.Reality as a concrete process 3.Reality as a contextual field of information 4.Reality as a symbolic discourse 5.Reality as a social construction 6.Reality as projection of human imagination CATEGORYASSUMPTION 1.Reality as a concrete structure 2.Reality as a concrete process 3.Reality as a contextual field of information 4.Reality as a symbolic discourse 5.Reality as a social construction 6.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 List books Articles Electronic sources