1. Chapter 1: Introduction to Accounting Theory
Accounting Theory ( 5th edition)
Wolk, Tearney & Dodd
Copyright March, 2000
Chapter 1: Introduction to Accounting Theory
What is Accounting Theory
Accounting Theory & Policy Making
Measurement
Chapter 1: An Introduction to Accounting Theory

2. Accounting Theory is defined as
the basic
assumptions
definitions
principles and
concepts that underlie the rule making by a legislative body
the reporting of
accounting and
financial information
applicable to financial accounting, not to
governmental or
managerial

3. Accounting Theory includes
Conceptual Frameworks
Accounting Legislation
Concepts
Valuation Models
Hypotheses and Theories

4. Accounting Theory & Policy Making
Accounting Theory ( 5th edition)
Wolk, Tearney & Dodd
Copyright March, 2000
Accounting Theory & Policy Making
3 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 forced FASB to disclose price-level information
Chapter 1: An Introduction to Accounting Theory

5. Accounting Theory ( 5th edition) Wolk, Tearney & Dodd
Financial Accounting Environment
Accounting Theory ( 5th edition)
Wolk, Tearney & Dodd
Copyright March, 2000
Accounting
Theory
Political
Factors
Economic
Conditions
Users
of Accounting Data and Reports
Practice
Policy Making
The Financial Accounting Environment
Black line denotes the MAIN FLOW
Dotted blue line denotes SECONDARY FLOW
Chapter 1: An Introduction to Accounting Theory

6. Accounting Theory ( 5th edition) Wolk, Tearney & Dodd
Copyright March, 2000
Accounting
Theory
Political
Factors
Economic
Conditions
Accounting
Policy Making
Accounting
Practice
Audit
Function
The Financial Accounting Environment
Black line denotes the MAIN FLOW
Dotted blue line denotes SECONDARY FLOW
Users
of Accounting Data and Reports
Chapter 1: An Introduction to Accounting Theory

7. Measurement is defined as
the assignment of numbers to the attributes or properties being measured

8. Measurement Categories
Direct or Indirect
Direct is preferable; managers like
Indirect is a 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

9. Measurement Process Is not simple
There is not just one absolutely correct measure
The process will depend on several factors:
The object itself
The attribute being measured
The measurer
Counting operations
Instrument used
Constraints affecting the measurer

10. Measurement Types (NOIR)
Nominal
Most simple
Groups like 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

11. Quality of Measurements
Objectivity or Verifiability
The degree of agreement among measurers
Statistically, this means the less variance there is, the higher the objectivity
Bias
Timeliness
Cost Constraint

12. SUMMARY: Introduction to Accounting Theory
Accounting Theory ( 5th edition)
Wolk, Tearney & Dodd
Copyright March, 2000
SUMMARY: Introduction to Accounting Theory
What is Accounting Theory?
Accounting Theory & Policy Making
Measurement
Chapter 1: An Introduction to Accounting Theory