This paper discusses the statement: “ there is no universally accepted accounting theory. ” In add-on, it offers some basic and historical background sing accounting and discusses the different attacks to develop an accounting theory, before depicting three common accounting theories. Finally, the world of the above statement and the factors that confront a cosmopolitan accounting theory are debated.
Table of Content
Introductionaˆ¦.aˆ¦aˆ¦.aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦..4
Historical Background… aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦4
Accounting Theory aˆ¦aˆ¦aˆ¦aˆ¦.aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦ … 5
3.1 Need of an Accounting Theoryaˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦6
3.2 Developing Accounting Theory: Approachs and Method..6
Common Accounting Theoriesaˆ¦..aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦ … .8
Positive Theoryaˆ¦.aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦ … … … … … … 8
Normative Theory… … … … … … … … … … … … … … … … … … ..8
Agency Theory… … … … … … … … … … … … … … … … … … … .9
Universally Accepted Accounting Theory aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦ … 9
Conclusionaˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦..aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦ … 10
Referencesaˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦.aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦aˆ¦11
1. Introduction
Accounting is a really old scientific discipline as it is purely related to the first signifiers of trade in the old universe. Harmonizing to Belkaoui ( 1992: 22 ) , the Committee on Terminology of American Institute of Certified Public Accountants ( AICPA ) defines accounting as follows:
“ Accounting is the art of recording, sorting and summarizing in a important mode and in footings of money, minutess and events which are in portion at least, of a fiscal character, and construing the consequences thereof. ”
Belkaoui ( 1992: 22 ) believes that such a definition is limited and a broader option is offered that defines accounting as:
“ The procedure of identifying, mensurating and pass oning economic information to license informed judgements and determinations by users of the information. ”
2. Historical Background
The history of accounting is of importance to those wishing to understand bing and future accounting patterns. Historically, the first signifier of accounting patterns was bookkeeping. Bookkeeping resulted from a demand of ancient bargainers in Chaldean, Babylonian, Akkadian, and Assyrian civilisations ( Belkaoui, 1992 ) . Those ancient bargainers developed advanced trading patterns to track their costs and incomes. This of class, led to enter maintaining as the best. Belkaoui states that the earliest known signifier of record maintaining day of the months back to 3000 B.C. which was found in Old Irak ( Belkaoui, 1992 ) .
Egyptian and Chinese civilizations besides had old accounting patterns for managing both exchequer and other authorities histories. In Grecian civilization, there was a celebrated comptroller named Zenon. He managed the estates of Apollonius ( a Grecian curate of finance ) . Zenon was the first to present the first Responsibility Accounting System harmonizing to Belkaoui ( 1992 ) .
In the Roman civilization, revenue enhancements and societal categories were dependent on declared belongingss. As a consequence, taxpayers were supposed to subject clear fiscal statements. Of class, these factors enforced the being of clerking in the ancient universe. During the sixteenth, 17th and 18th centuries, a immense passage in accounting took topographic point. Luca Pacioli introduced the Italian double-entry method. Subsequently on, new methods were introduced to manage fixed assets ( Belkaoui, 1992 ) .
In mensurating international harmonisation in accounting, many anterior research surveies
( e.g. new wave der Tas, 1988 and 1992 ; Emenyonu and Gray, 1992 and 1996 ; Archer, Delvaille and McLeay, 1995 ; Pierce and Weetman, 2000 ; Aisbitt, 2001 ; Parker and
Morris, 2001 ) have concentrated entirely on the state in which a house is domiciled as the determiner of its fiscal coverage patterns. This is because the
Research design employed in such surveies focuses entirely on between-country differences in the accounting policies adopted by firms1, and hence the underlying premise has been that alterations in accounting pattern are caused by regulative
Harmonizing to Schroeder and Clarke ( 1998 ) , between the old ages 1900 and 1973, several organic structures were introduced to set up and better fiscal accounting criterions, patterns, and coverage.
These organic structures included the American Institute of Accountants ( AIA ) which was established in 1916.A Then, in 1934, the Securities and Exchange Commission ( SEC ) was established. In 1937, the American Institute of Certified Public Accountants ( AICPA ) was formed as a consequence of a amalgamation between the AIA and the American Society of Certified Public AccountantsA ( Schroeder and Clarke, 1998 ) .
3. Accounting Theory
A theory in its simplest signifier is an account of a certain phenomena, a set of observations. The theory can be understood as a generalization used to organize informations into meaningful information.
Glautier and Underdown ( 1991 ) argue that theories are supposed to be concerned with the account of a set of observations. Besides, they argue that associating an bing theory to a set of observations or coming up with a theory that relates to a set of observations is basically holding the same aim which is supplying an account to these observations.
3.1 Need for an Accounting Theory
Webster define a theory as “ a systematic statement of rules. ” Besides, it gives a more elaborate definition:
“ A preparation of evident relationships or underlying rules of certain ascertained phenomena which has been consistently accumulated, organised, and verified good plenty to supply a frame of mention for future actions ” ( Schroeder, Richard et al. , 1998:1 ) .
The 2nd definition gives some ground for the demand of an accounting theory. These grounds include organizing accounting patterns and managing future alterations. Of class, a theory can be applied into practical countries of involvement. An accounting theory makes it easier to understand accounting in a professional manner.
3.2 Developing Accounting Theory: Approachs and Methods
An accounting theory should supply comptrollers with guidelines for how to stand for a sum-up of fiscal informations for activities during a twelvemonth. Of class, this information should be utile to people who are traveling to utilize it in doing determinations and judgements.
Glautier and Underdown ( 1991 ) list three common attacks that have been used to develop accounting theory antecedently. These attacks are:
Descriptive Approach
Decision Usefulness Approach
Welfare Approach
They classified the Decision Usefulness Approach into two types: empirical and normative ( Glautier and Underdown, 1991 ) .
On the other manus, there have been several attacks to develop accounting theory. These attacks make usage of other classical methods of concluding such as the ethical, sociological and economic attacks.
The descriptive attack developed theories that are concerned with what comptrollers should make. Descriptive theories use initiation. Normally, inductive logical thinking will get down by doing adequate observations by looking at similar cases and patterns before pulling a generalized decision.
Glautier and Underdown ( 1991 ) province that the descriptive attack has attempted to associate the accounting patterns of comptrollers to a generalized accounting theory.
Normally, descriptive attacks lead to descriptive or positive theories. These theories are concerned with bing comptrollers ‘ patterns. Descriptive theories explain those patterns and do it possible to foretell future behaviors. Glautier and Underdown ( 1991 ) offer a utile illustration with respects to such anticipations. By using the descriptive theory, one can easy foretell that the reception of hard currency will be entered in the debit side of a hard currency book.
The Decision Usefulness Approach resulted from the great involvement in behavioral researches in accounting during the 1970s ( Glautier and Underdown, 1991 ) . This type of attack resulted into two chief theories: Empirical and Normative theories.
The Empirical theory resulted from the addition in empirical research in accounting. The aim of such research was to hold dependable consequences that would positively act upon determination devising. This nonsubjective forced the usage of advanced statistical techniques. The addition in university accounting classs resulted in a great figure of pupils that were capable of transporting out advanced and sophisticated quantitative research.
On the other manus, the Normative Theory dressed ores on which determination theoretical accounts should be selected by determination shapers in order to do logical determinations.
The 3rd attack mentioned by Glautier and Underdown ( 1991 ) is the Welfare Approach. This attack can be considered as an extension to the decision-making attacks. The chief aim of the public assistance attack is to increase societal public assistance through rational determinations based upon dependable accounting information.
4. Common Accounting Theories
Positive Theory
The positive theory is chiefly explicating bing accounting patterns and observed accounting phenomena ( Schroeder, Richard et al. , 2001 ) . Belkaoui ( 1992 ) believes that positive accounting theory is looking into why accounting patterns have developed into the manner they are today. Then, the positive theory explains or predicts accounting events. Many positive accounting theory protagonists are optimistic due to that positive attack is acquiring more protagonists.
Belkaoui ( 1992 ) noted unfavorable judgment of positive theory including the point that the theory construct is based on an disused doctrine of scientific discipline and that theories of empirical scientific discipline do non hold positive statements on “ what is. ”
Normative Theory
The normative theory focuses on what should be alternatively of what is ( Belkaoui, 1992 ) . Therefore, it is on the contrary side to positive theory. This theory is based on a set of aims. It was developed utilizing the deductive attack that uses logic. Normative theory advocators agree on a set of aims, believing that these aims are the best for comptrollers. Then they deduce their hypotheses and rules. Their following measure is to use this theory to existent life accounting patterns and events. Actually, normative theory will depend on its advocators and the degree of harmoniousness they can make on the in agreement set of ends.
Although the normative attack is really of import in modulating the industry and developing new accounting patterns, it may non manage possible future effects caused by new theories that may alter accounting pattern in the hereafter.
Agency Theory
Agency theory attempts to depict fiscal statements and their basic accounting theories ( Schroeder, Richard et al. , 2001 ) . This theory emerged from the relationship that exists between directors and stockholders. Agency theory assumes that persons ever try to increase their ain expected public-service corporations. Besides, it assumes that they are originative in making so. This theory is based on the fact that there is an in agreement relationship between two parties. The first is the agent ( normally the directors of a house ) and the 2nd is the principal or the stakeholders. The chief agrees to allow the agent act on his or her behalf. This normally happens because stakeholders are non capable or non trained sufficiently good to manage the house in the mode that the directors can. An issue arises here which is the struggle of involvement. This issue can be solved through several methods that guarantee common benefit to both sides such as fillips or a per centum for the agents. One negative point sing bureau theory is that it is based on the premise that both parties are seeking to maximize his ain expected public-service corporations. This premise is non accepted politically or socially.
5. Universally Accepted Accounting Theory
From the old amplification on accounting theories, it is clear that there are different attacks to develop them. In add-on, there is a broad and diverse scope of accounting patterns all over the universe. By and large Accepted Accounting Principles ( GAAP ) is the standard model of guidelines for fiscal accounting used in the United States of America. The obstruction that prevents GAAP going the rules on which planetary accounting theory is developed is that every state has its ain criterion accounting pattern version of GAAP, normally set by a national government organic structure.
Presently, there is no Universally Accepted Accounting Theory. It seems that holding such a theory will non happen in the close hereafter. This is due to many factors, including the fact that utilizing different attacks to develop such a theory will ensue in different theories. Besides, set uping international criterions is a really slippery procedure due states seeking to protect the privateness of their domestic legal and economic affairs. In add-on, it is hard to hold one theory that satisfies all demands.
Of class, it is of import to hold guidelines to help users with no accounting cognition to understand company histories. Besides, there should be similar guidelines for comptrollers to manage multi-national houses and constitutions.
6. Decision
Although some may reason that there is no demand for such a cosmopolitan theory as we are making good without it, there is still a demand for such a theory even if it is non every bit perfect as it should be.
To sum up, set uping Universally Accepted Accounting Theory can be a really complicated procedure. This paper discussed the statement: “ there is no universally accepted accounting theory. ” It gave a brief historical background and some basic information associating to accounting. It discussed the different attacks used to develop accounting theories, every bit good as the three common accounting theories. Finally, the essay elaborated on the fact that presently there is no cosmopolitan planetary accounting theory.
