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Introduction To Accounting Theory

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11 views

Introduction To Accounting Theory

Uploaded by

Abir Khandoker
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ACCOUNTING THEORY & STANDARDS

LECTURE-1&2
COURSE OUTLINE AND INTRODUCTION

Dr. Md. Saiful Alam FCMA


Associate Professor
Department of Accounting &
Information Systems
Intended Learning Outcomes (ILO)
After this lecture, students will

 Be familiar with the course objectives, teaching methods, course assessment, and
course contents;
 Understand what would be expected from them throughout the course;
 Get to know the meaning of accounting theory;
 Learn why accounting students should study theory; and
 Identify the theoretical developments in accounting over the years.

2
Course Objectives
This course is designed to:

provide students with the opportunity to obtain a sound knowledge of alternative


theories of accounting.
Examine the nature of theories and alternative forms of logic.

Understand the role of theory in current accounting standards, accounting practice,


and the use of accounting information by diverse stakeholders in reporting entities.
Identify the issues of corporate narratives.

Understand social structures and the role accounting information played therein.

3
Teaching Method
It‟s a combination of

Discussion on
Formal lectures previously Cases
assigned topics

Research findings Presentation

4
Evaluation System
Departmental Evaluation System with some modification

Course Requirements Weight

First Mid-term 15%

Second Mid-term 15%

Presentation, Class Test, Attendance and Class 10%


Participation

Semester Final 60%

5
Attendance Requirements
Conflict between personal and institutional rules

Personal Belief: There should have DU Rule:


no such requirement
Sit for the exam:
•If a Minimum of 75% Attendance is maintained
•Fine Tk.5,000 if the attendance falls within the
range of 60-74%
Cannot sit for the exam:
•If the attendance falls below 60%
6
Detailed Course Contents
Introductory

Defining Accounting, Theory, Accounting Theory

Philosophies and Theoretical Paradigms

The Accounting Environment

7
Detailed Course Contents
Accounting Regulation and Internationalization

Pro and Anti Regulation Perspectives

Theories of Regulation

Harmonization: pros and cons

Due process and the politics of standard setting


8
Detailed Course Contents
Normative Theories

The Conceptual Framework of Accounting

Fair Value Accounting

9
Detailed Course Contents
Positive Theories

Positive Accounting Theory: Basics and Assumption

Agency conflict, resolution, contracting mechanisms

PAT: Alternative Hypothesis with empirics

Assumptions and Criticisms


10
Detailed Course Contents
System Oriented Theories

Political Economy, Legitimacy Theory with empirics

Impression Management

Stakeholder Theory with empirical evidence

Institutional Theory with empirical evidence


11
Detailed Course Contents
Capital Market Theories

CMR: Basics, Information content of earnings and


Empirics

Behavioral Accounting Research

12
Detailed Course Contents
Critical Theories

Critical accounting research:


basics

Key philosophies in CAR (Marx,


Foucault, Habermas, Gramsci etc.)
13
14

Textbook:
Financial
Accounting Theory
by Craig Deegan &
Jeffrey Unerman.

DMSA_Acc Theory & Stds_Dept of A&IS_DU 1/29/2024


15

Reference Book:
Financial
Accounting Theory
by W R Scott

DMSA_Acc Theory & Stds_Dept of A&IS_DU 1/29/2024


“Accounting What is accounting?
What is a theory?

is….” What is accounting theory?


What is Theory?
a plausible or scientifically acceptable general principle or body of
principles offered to explain phenomena
 „A coherent set of hypothetical, conceptual and pragmatic principles forming the
general framework of reference for a field of inquiry‟ (Hendriksen 1970, p.1).
 „A scheme or system of ideas or statements held as an explanation or account of a
group of facts or phenomena‟ (The Oxford English Dictionary)
 Different to a „hunch‟
 A theory could be based on numerous observations (inductive reasoning) or developed
on the basis of logic (deductive reasoning)
 Could be „positive‟ or „normative‟
 Theories can help us make sense of the world in which we live and can provide a
structure to understand our (social) experiences

17
What is Accounting Theory?
Accounting is a human activity
 Theories of accounting consider
 people‟s behavior with respect to accounting information
 people‟s needs for accounting information
 why people within organizations elect to supply particular information
 Theories might:
 Prescribe how assets should be valued
 Predict why managers will choose particular accounting methods
 Explain how an individual‟s cultural background affects the accounting information provided
 prescribe what accounting information should be provided to particular classes of stakeholders
 predict that the relative power of a stakeholder group will affect the accounting information it
receives
 explain or predict how accounting disclosures might be used as part of a strategy to legitimize the
operations of an organization

18
Why Study Accounting Theory?
Understanding the Role of Accounting in Organizations and Beyond

 Studying theories of accounting exposes students to various issues, including:


 how elements of accounting should be measured
 motivation for organizations to provide certain types of accounting information
 motivation for individuals to support or lobby regulators for some accounting methods in
preference to others
 the implications for organizations and their stakeholders if one accounting method is chosen or
mandated in preference to others
 how and why the capital markets react to particular information
 whether there is a „true measure‟ of income

19
Why Study Accounting Theory?
Understanding the Role of Accounting in Organizations and Beyond

 Without a theoretically informed understanding it is difficult to:


 evaluate the suitability of current accounting practices
 to develop improved accounting practices where current practices are unsuitable for
changed business circumstances
 to defend the reputation of accounting when accounting practices are blamed for causing
companies to fail (as has been the case with the global financial crisis)

20
Overview of Theories of Accounting
Many theories are used but do they really represent accounting?

 Many theories of financial accounting exist


 Positive: what is the accounting practice?
 Normative: what should be the accounting practice?
 No universally accepted theory of accounting
 different perspectives about the central objective, role, and scope of financial accounting
 No universally accepted perspective on the role of accounting theory
 different researchers have different perspectives on the role of accounting theory (for
example, to explain and predict practice versus prescribing particular practice)
 a researcher‟s own values will influence which theory he or she elects to embrace

21
Development of Accounting Theory
Twentieth Century

22
Theory Development Syllogisms

Inductive, Deductive & Abductive

23
Evaluating Theories of Accounting
Many theories are used but do they really represent accounting?

Why or how, would we select one theory in preference to another?

Students should consider the merit of the argument and the research methods
employed

Some researchers may adopt strategies (such as the overt condemnation of


alternative theories) to support their own research and theoretical perspective

Researchers that adopt a given „paradigm‟ often challenge the views of people
researching from a different paradigm
24
Questions?

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