ARTICLE 1 - Semester a couple of 2013
Deegan Topic one particular:
Introduction to financial accounting theory
1 . 1 What is the difference among a positive theory of accounting and a normative theory of accounting? Broadly speaking, an optimistic theory attempts to explain and predict particular phenomena while a normative theory seeks to recommend what must be done in particular circumstances based on particular assumptions made by the investigator. In relation to accounting, these assumptions might correspond with such things as what motivates people or what is the central objective of accounting. Confident theories are normally evaluated by considering just how well the explanations or perhaps predictions correspond with actual observations. Normative theories are not assessed on the basis of their particular correspondence with observations of real world phenomena. For example , a researcher may possibly develop a theory that prescribes a particular approach to asset value. The theory ought not to be considered as broken if people currently usually do not adopt the prescribed approach to asset value.
1 . 6th The IASB and the FASB are currently having a revised conceptual framework of financial reporting. If you have been asked to review the framework—which is one of a ordre theory of accounting—why will it possibly be important so that you can pay particular attention to how a objective of economic reporting can be defined within the framework? If the revised conceptual framework (which is an example of a ordre theory) is located upon, or perhaps built upon, a particular aim (or, ‘assumption') then, before we are prone to accept the prescriptions given by the revised framework we might need to satisfy ourselves that we accept the central supposition. If we deny the central assumption, after that no matter how realistically developed the idea might be we will decline its medications. Within the direct exposure draft released in 2008 as part of the development of the revised structure it was stated: The objective...