1. Introduction to financial accounting theory

Question 1

Deductive reasoning is?

Answer 1

Deductive or ‘top-down’ reasoning involves starting with general statements and using them to reach a logical conclusion.

Question 2

Inductive reasoning is?

Answer 2

Inductive or ‘bottom-up’ reasoning involves starting with an observation, and using it to draw a probable conclusion.

Question 3

Why is it called Accounting Theory?

Answer 3

Theory is based on logical, systematic and coherent reasoning

Question 4

Inductive - what are 3 General Conditions before a theory is developed through observation?

Answer 4

1. The number of observations forming the basis of a generalisation must be large.
2. The observations must be repeated under a wide variety of conditions.
3. No accepted observation should conflict with the derived universal law.

Question 5

What is the positive accounting theory?

Answer 5

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.

Question 6

What does IFRS stand for?

Answer 6

International Financial Reporting Standards

Question 7

What does IASB stand for?

Answer 7

International Accounting Standards Board

Question 8

What does AASB stand for?

Answer 8

Australian Accounting Standards Board

Question 9

What is empirical research?

Answer 9

Research that relies upon observing actual phenomena or data

Question 10

What is meant by empirically based theories?

Answer 10

An accounting theory may be developed on the basis of past observations, and developed to make predictions about likely occurrences

Question 11

What is ‘prescriptive research’?

Answer 11

Research that is generally based on deductive reasoning and provides prescriptions, or suggestions, about what people should do

Question 12

What is meant by ‘positive research’

Answer 12

Research that seeks to explain and/or predict particular phenomena

Question 13

What is meant by ‘normative research’?

Answer 13

Research that is generally based on deductive reasoning and seeks to develop a basis for informing people as to what they should do.

Question 14

What is ‘Induction’?

Answer 14

The development of ideas or theories through observation.

Question 15

What is ‘Ontological assumptions’?

Answer 15

Assumptions about how we see the world.

Question 16

What is meant by ‘Generalisability’?

Answer 16

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.

Question 17

What is meant by ‘Assumption’?

Answer 17

An assumption is something taken for granted or accepted as true without further proof.

Question 18

What is meant by ‘Falsifiable’?

Answer 18

A theory is considered to be falsifiable if it provides predictions that can be tested and ultimately rejected.

Question 19

What is ‘Falsificationist’?

Answer 19

Describing a philosophy that uses experiment and observation to attempt to show that a scientific theory is false, rather than attempting to verify it.

Question 20

What is ‘Parsimonious theory’?

Answer 20

The researcher has applied the most logically economic explanation to explain particular phenomena.

Question 21

What is ‘Paradigm’?

Answer 21

Refers to the progress of scientific practice based on people’s philosophies and assumptions about the world and the nature of knowledge.

Question 22

What are’ Decision usefulness theories’?

Answer 22

Theories that ascribe a particular type of information for particular classes of users on the basis of assumed decision-making needs.

Question 23

What are ‘Normative theory or prescriptive theory’?

Answer 23

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.

Question 24

What is ‘Positive Accounting Theory’?

Answer 24

A theory that seeks to predict and explain why managers and/or accountants elect to adopt particular accounting methods in preference to others.

Question 25

What is ‘Positive theories’?

Answer 25

Theories that provide the basis for explaining or predicting particular phenomena.

Question 26

What is the ‘Inductive approach ‘?

Answer 26

An inductive approach to research is based upon developing theory through observation of particular phenomena.

Question 27

What does SEA stand for?

Answer 27

Social and Environmental Accounting