Chapter 1 & 2

Question 1

Accounting is both a ….

Answer 1

a technical and social practice

Question 2

“A coherent set of hypthetical, conceptual and pragmatic principles forming the general framework of reference for a field of inquiry” - Hendriksen

Answer 2

A theory

Question 3

Inductive reasoning

Answer 3

Theory is based on numerous observations

Question 4

Deductive reasoning

Answer 4

Theory is developed on the basis of logic

Question 5

Llewelyn´s five levels of theories

Answer 5

• Level 1 - metaphors
• Level 5 - “grand theories”, have universal application
• Level 4 - often applied in accounting research

Question 6

Levels of theories - Level 4

Answer 6

Explains specific social, organisational or individual phenomena in their respective setting ex legitimacy, institutional and stakeholder theory

Question 7

What is a grounded theory? Strauss and Corbin

Answer 7

A qualitative research method that uses a systematic set of procedures to develop and inductively derive grounded theory about a phenomenon. Grounded in data

Question 8

Theories of accounting consider such things as…

Answer 8

• why particular accounting rules are mandated by regulators
• people´s behaviour with respect to accounting information
• people´s need for accounting information
• why people within organisations elect to supply particular information

Question 9

Development of accounting theory - 1920s to 1960s

Answer 9

Relied upon the process of induction (the development of ideas or theories through observations of the real world.
Specific –> general

Question 10

How an idea is developed through inductive theory - Chalmer

Answer 10

• large number of observations forming the basis
• observations must be repeated under a wide variety of conditions
• no accepted observation should conflict with the derived universal law

Question 11

Criticism to induction

Answer 11

Only studying “what is” and not “what is not” or “what should be”. Concentrates on status quo and does not give further improvement

Question 12

Development of accounting theory - 1960s and 1970s

Answer 12

Shit to normative period where you sought to prescribe accounting practices (normative theories). Theories were deductive in nature (based on logical argument).
- Wanted to provide approaches to asset valuation in at time of inflation (not historical cost)

Question 13

What are normative theories?

Answer 13

Based on what the researcher believes SHOULD occur in particular situation. Provides PRESCRIPTIONS.

Question 14

Development of accounting theory - mid to late 1970s

Answer 14

Shift to explaining and predicting accounting practice (positive theories)

Question 15

What are positive theories?

Answer 15

Seek to predict and explain particular situations. Starts with assumptions and becomes predicitions through logical deduction ex all self-interested. The predicitions or explanations are then tested through observations

Question 16

Defintion accounting

Answer 16

a process of collecting, summarising, analysing and communicating information to enable users (stakeholders) of that information to make informed decisions

Question 17

The 3 key concepts of the definition of accounting is…

Answer 17

• informed decisions
• performance
• stakeholders

Question 18

Definition accounting - meaning “informed decisions”

Answer 18

Information, if it is reliable and relevant, effectively provides us with the power to make informed decisions. The accountant´s role to make judgements about what information is most appropriate to make informed decisions

Question 19

Definition accounting - “Performance”

Answer 19

Accounting can address aspects of financial, social and environmental performance

Question 20

Definition accounting - “Stakeholders”

Answer 20

Any group or individual who can affect, or is affected by, the achievement of an organisations objectives

Question 21

Prioritising the interests of “powerful stakeholders” will tend to focus on satisfying…

Answer 21

… the interest of stakeholders WHO can AFFECT the organisation (managerial branch of stakeholders)

Question 22

Prioritising a borader “ethical perspective” will tend to focus on satisfying…

Answer 22

…the interest and needs from stakeholder who can affect and are AFFECTED by the organisation (ethical/moral branch of stakeholder)

Question 23

The information (accounting) that is collected and reported will be influenced by:

Answer 23

• what aspects of performance management believes it needs to monitor, control and/or improve (organisational responsibilities)
• what aspects of performance it believes it needs to disclose to people outside (organisational accountabilities)

Question 24

Meaning accountability

Answer 24

“The duty to provide an account of those actions for which one is held responsible”

Question 25

Accountability´s 2 key duties

Answer 25

1. to undertake certain actions in accordance with the expectations of stakeholder
2. to provide an account, of those actions to the stakeholders

Question 26

Accountability model involves 4 questions which influence the information which is collected and reported

Answer 26

1. Why do the managers of an organisation decide to collect, and disclose, information about particular aspects?
2. Who are the stakeholders to whom the disclosures will be directed?
3. What types of information will be collected, and what will be disclosed to stakeholders?
4. How should the information be disclosed?