1. Introduction to contemporary issues in accounting Flashcards
Theories are useful per Llewelyn because
They generate expectations about the world and are useful wherever people address ambiguity and contradiction (Llewelyn 2003)
What is a theory per Hendrikson?
Coherent set of hypothetical, conceptual and pragmatic principles forming the general framework of reference for a field of inquiry
What is a theory generally?
Belief or principle(s) that guides actions or behaviours
Financial accounting theories
Consider people’s behaviour and/or people’s needs with regards to accounting information
Accounting theory per Henderson means
Description, explanation or a prediction based on observations and/or logical reasoning
Theories can help to
- evaluate suitability of current policies
- develop improved policies
- defend reputation
Induction approach
Descriptive theory
- explains based on observation
- looks at status quo
- does not evaluate
- no recommendations
Deductive approach
Normative theory
- prescribes what should occur what should be done i.e. recommends
- completely theoretical, no observation
- based on logical arguments which can be subjective
Inductive and Deductive approach
Positive theory
- explains based on observation to predict
- does not prescribe
Can a theory be proved?
Theory proved on current observations ignores the fact that subsequent observations not prove the theory
Falsificationists per Popper
- good theories are developed through trial and error
- generate hypotheses or predictions that have the potential to be rejected
- rejection leads to refinement
- never proved but ‘best’ available
- supports not proves
Areas of research
- capital market research
- accounting policy choice research
- accounting information processing research
- international accounting research
- voluntary disclosure issues
