1. Introduction to financial accounting theory Flashcards
Deductive reasoning is?
Deductive or ‘top-down’ reasoning involves starting with general statements and using them to reach a logical conclusion.
Inductive reasoning is?
Inductive or ‘bottom-up’ reasoning involves starting with an observation, and using it to draw a probable conclusion.
Why is it called Accounting Theory?
Theory is based on logical, systematic and coherent reasoning
Inductive - what are 3 General Conditions before a theory is developed through observation?
- The number of observations forming the basis of a generalisation must be large.
- The observations must be repeated under a wide variety of conditions.
- No accepted observation should conflict with the derived universal law.
What is the positive accounting theory?
It is concerned with explaining the practice. It is designed to explain and predict which firms will and which firms will not use a particular [accounting method] … but it says nothing as to which method a firm should use.
What does IFRS stand for?
International Financial Reporting Standards
What does IASB stand for?
International Accounting Standards Board
What does AASB stand for?
Australian Accounting Standards Board
What is empirical research?
Research that relies upon observing actual phenomena or data
What is meant by empirically based theories?
An accounting theory may be developed on the basis of past observations, and developed to make predictions about likely occurrences
What is ‘prescriptive research’?
Research that is generally based on deductive reasoning and provides prescriptions, or suggestions, about what people should do
What is meant by ‘positive research’
Research that seeks to explain and/or predict particular phenomena
What is meant by ‘normative research’?
Research that is generally based on deductive reasoning and seeks to develop a basis for informing people as to what they should do.
What is ‘Induction’?
The development of ideas or theories through observation.
What is ‘Ontological assumptions’?
Assumptions about how we see the world.
What is meant by ‘Generalisability’?
Generalisability is concerned with whether research findings can be generalised beyond the specific context in which the research was conducted. A study may be valid in one setting but not in another and in this instance the research results would not be generalisable.
What is meant by ‘Assumption’?
An assumption is something taken for granted or accepted as true without further proof.
What is meant by ‘Falsifiable’?
A theory is considered to be falsifiable if it provides predictions that can be tested and ultimately rejected.
What is ‘Falsificationist’?
Describing a philosophy that uses experiment and observation to attempt to show that a scientific theory is false, rather than attempting to verify it.
What is ‘Parsimonious theory’?
The researcher has applied the most logically economic explanation to explain particular phenomena.
What is ‘Paradigm’?
Refers to the progress of scientific practice based on people’s philosophies and assumptions about the world and the nature of knowledge.
What are’ Decision usefulness theories’?
Theories that ascribe a particular type of information for particular classes of users on the basis of assumed decision-making needs.
What are ‘Normative theory or prescriptive theory’?
Based on the norms or values or beliefs held by the researchers proposing the theories, it is usually based on a process of deduction rather than induction.
What is ‘Positive Accounting Theory’?
A theory that seeks to predict and explain why managers and/or accountants elect to adopt particular accounting methods in preference to others.
What is ‘Positive theories’?
Theories that provide the basis for explaining or predicting particular phenomena.
What is the ‘Inductive approach ‘?
An inductive approach to research is based upon developing theory through observation of particular phenomena.
What does SEA stand for?
Social and Environmental Accounting
