1. Accounting Theory (9th edition) Wolk, Dodd, and Rozycki
Copyright 2015
Chapter 1
Introduction to Accounting Theory
Wolk: Accounting Theory © SAGE Publications, Inc.
Chapter 1: An Introduction to Accounting Theory

2. Accounting Theory (9th edition) Wolk, Dodd, and Rozycki
Copyright 2015
Lecture
What Is Accounting Theory? Accounting Theory & Policy Making Measurement
In a stand-alone Accounting Theory course, consider using the following exercise before getting into the text:
Break the class into groups of 2 to 3 students each.
Distribute 100-piece jigsaw puzzles in plastic ziplock bags to each group. Each group should have 100 jigsaw pieces, but no picture of what the assembled pieces should look like. Each group should have a different puzzle. Note the time the students start this process.
When a group completes its puzzle, allow its members to help other groups with their puzzles. Note the time when the last puzzle is completed and the total elapsed time for the puzzle-solving process.
Once all puzzles are complete, have each group determine the process(es) it used to solve the puzzle. For example, did it create the border first to frame the puzzle; did it group like colors; did it attempt to match shapes? Describe the process.
Have each group break down the puzzle and return it to its plastic zipock bag and place the bag into its original box. Collect the puzzles from the students.
Distribute a second set of puzzles (ideally a different set, but a shuffling of the first set is also an alternative) to the groups, but this time include the puzzle’s complete picture with the jigsaw pieces. Note the start time.
Once all puzzles are complete, have each group determine the process(es) it used to solve the puzzle. Did the puzzle-solving process differ the second time? If so, why do you think it did?
Was the second puzzle easier or more difficult to complete? Why?
How might this exercise relate to accounting theory?
Wolk: Accounting Theory © SAGE Publications, Inc.
Chapter 1: An Introduction to Accounting Theory

3. Accounting Theory Is Defined As . . .
Accounting Theory (9th edition)
Wolk, Dodd, and Rozycki
Copyright 2015
Accounting Theory Is Defined As . . .
The basic . . .
Assumptions
Definitions
Principles
Concepts that underlie the rule making by a legislative body
The reporting of
Accounting
Financial information
Applicable to financial accounting
Not applicable to governmental or managerial bodies
Wolk: Accounting Theory © SAGE Publications, Inc.
Chapter 1: An Introduction to Accounting Theory

4. Accounting Theory Includes . . .
Accounting Theory (9th edition)
Wolk, Dodd, and Rozycki
Copyright 2015
Accounting Theory Includes . . .
Conceptual Frameworks Accounting Legislation Concepts Valuation Models Hypotheses and Theories
Wolk: Accounting Theory © SAGE Publications, Inc.
Chapter 1: An Introduction to Accounting Theory

5. Critical Thinking and Analysis
Accounting Theory (9th edition)
Wolk, Dodd, and Rozycki
Copyright 2015
Critical Thinking and Analysis
Is accounting theory really necessary for the making of accounting rules?
Discuss
Is regulation necessary?
What, if any, unifying themes arose before the existence of any standard-setting body?
Regulation would not be necessary if everyone saw every event the same way and had the same self interests. In real life, that is just not the case.
Some still argue that regulation is not necessary. The themes of realization and matching arose before the existence of any standard-setting body.
Wolk: Accounting Theory © SAGE Publications, Inc.
Chapter 1: An Introduction to Accounting Theory

6. Accounting Theory & Policy Making
Accounting Theory (9th edition)
Wolk, Dodd, and Rozycki
Copyright 2015
Accounting Theory & Policy Making
Three inputs to policy-making function
Accounting Theory
Political Factors
Economic Conditions
Once policy is made . . .
Accounting practice implements the policy
Users observe effects of implementation
Accounting Theory: Developed and refined by the process of accounting research
Political Factors: Refers to the effect upon policy making of those who are subject to it
Economic Conditions: Classic example is the high inflation rates of 1970s that forced FASB to disclose price level information
Accounting Practice implements the policy: This is the “art” of accounting; its implementation is not scientific.
Wolk: Accounting Theory © SAGE Publications, Inc.
Chapter 1: An Introduction to Accounting Theory

7. Accounting Theory (9th edition) Wolk, Dodd, and Rozycki
Copyright 2015
The Financial Accounting Environment
Solid line denotes the MAIN FLOW
Dotted line denotes SECONDARY FLOW
Wolk: Accounting Theory © SAGE Publications, Inc.
Chapter 1: An Introduction to Accounting Theory

8. Measurement Is Defined As
Accounting Theory (9th edition)
Wolk, Dodd, and Rozycki
Copyright 2015
Measurement Is Defined As
The assignment of numbers to the attributes or properties being measured
How does one measure the success of an organization?
Wolk: Accounting Theory © SAGE Publications, Inc.
Chapter 1: An Introduction to Accounting Theory

9. Measurement Categories
Accounting Theory (9th edition)
Wolk, Dodd, and Rozycki
Copyright 2015
Measurement Categories
Direct or Indirect
Direct is preferable; managers like
Indirect is roundabout way of making the measurement
Assessment and Prediction
Assessment measures are concerned with particular attributes of objects
Prediction measures are concerned with factors that may be indicative of conditions in the future
Wolk: Accounting Theory © SAGE Publications, Inc.
Chapter 1: An Introduction to Accounting Theory

10. Accounting Theory (9th edition) Wolk, Dodd, and Rozycki
Copyright 2015
Measurement Process
It’s not simple. There is not just one absolutely correct measure.
Emphasize that measurement should be on the relevant few, not the irrelevant many. This is today’s problem; we have so much data that it is a challenge to find the correct numbers to follow.
Wolk: Accounting Theory © SAGE Publications, Inc.
Chapter 1: An Introduction to Accounting Theory

11. The Measurement Process Depends on Several Factors . . .
Accounting Theory (9th edition)
Wolk, Dodd, and Rozycki
Copyright 2015
The Measurement Process Depends on Several Factors . . .
The object itself The attribute being measured The measurer Counting operations Instrument used Constraints affecting the measurer
Emphasize that measurement should be on the relevant few, not the irrelevant many.
Wolk: Accounting Theory © SAGE Publications, Inc.
Chapter 1: An Introduction to Accounting Theory

12. Measurement Types (NOIR)
Accounting Theory (9th edition)
Wolk, Dodd, and Rozycki
Copyright 2015
Measurement Types (NOIR)
Nominal
Most simple
Groups similar objects (e.g., chart of accounts)
Ordinal
Indicates an order of preference
Degree of preference among the ranks is not necessarily the same
Interval
Change in the attribute being measured is equal
Ratio
Same as interval, but zero point has a unique quality
Note that information content increases as the type moves, from N-O-I-R. To help students remember the measurement types, NOIR is the French word for black.
Wolk: Accounting Theory © SAGE Publications, Inc.
Chapter 1: An Introduction to Accounting Theory

13. Quality of Measurements
Accounting Theory (9th edition)
Wolk, Dodd, and Rozycki
Copyright 2015
Quality of Measurements
Objectivity (Verifiability)
The degree of agreement among measurers
Statistically, this means the less variance there is, the higher the objectivity
Bias (Usefulness)
Timeliness
Financial statement data should be up-to-date
Cost Constraint
Wolk: Accounting Theory © SAGE Publications, Inc.
Chapter 1: An Introduction to Accounting Theory

14. Accounting Theory (9th edition) Wolk, Dodd, and Rozycki
Copyright 2015
Lecture Recap
What Is Accounting Theory? Accounting Theory & Policy Making Measurement
Wolk: Accounting Theory © SAGE Publications, Inc.
Chapter 1: An Introduction to Accounting Theory

15. Wolk: Accounting Theory © 2017 SAGE Publications, Inc.
“It is impossible for a man to learn
what he thinks he already knows.”
Epictetus (CE 55–135): Discourses II
Wolk: Accounting Theory © SAGE Publications, Inc.