Chapter 1 & 2 Flashcards
Accounting is both a ….
a technical and social practice
“A coherent set of hypthetical, conceptual and pragmatic principles forming the general framework of reference for a field of inquiry” - Hendriksen
A theory
Inductive reasoning
Theory is based on numerous observations
Deductive reasoning
Theory is developed on the basis of logic
Llewelyn´s five levels of theories
- Level 1 - metaphors
- Level 5 - “grand theories”, have universal application
- Level 4 - often applied in accounting research
Levels of theories - Level 4
Explains specific social, organisational or individual phenomena in their respective setting ex legitimacy, institutional and stakeholder theory
What is a grounded theory? Strauss and Corbin
A qualitative research method that uses a systematic set of procedures to develop and inductively derive grounded theory about a phenomenon. Grounded in data
Theories of accounting consider such things as…
- 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
Development of accounting theory - 1920s to 1960s
Relied upon the process of induction (the development of ideas or theories through observations of the real world.
Specific –> general
How an idea is developed through inductive theory - Chalmer
- 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
Criticism to induction
Only studying “what is” and not “what is not” or “what should be”. Concentrates on status quo and does not give further improvement
Development of accounting theory - 1960s and 1970s
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)
What are normative theories?
Based on what the researcher believes SHOULD occur in particular situation. Provides PRESCRIPTIONS.
Development of accounting theory - mid to late 1970s
Shift to explaining and predicting accounting practice (positive theories)
What are positive theories?
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
Defintion accounting
a process of collecting, summarising, analysing and communicating information to enable users (stakeholders) of that information to make informed decisions
The 3 key concepts of the definition of accounting is…
- informed decisions
- performance
- stakeholders
Definition accounting - meaning “informed decisions”
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
Definition accounting - “Performance”
Accounting can address aspects of financial, social and environmental performance
Definition accounting - “Stakeholders”
Any group or individual who can affect, or is affected by, the achievement of an organisations objectives
Prioritising the interests of “powerful stakeholders” will tend to focus on satisfying…
… the interest of stakeholders WHO can AFFECT the organisation (managerial branch of stakeholders)
Prioritising a borader “ethical perspective” will tend to focus on satisfying…
…the interest and needs from stakeholder who can affect and are AFFECTED by the organisation (ethical/moral branch of stakeholder)
The information (accounting) that is collected and reported will be influenced by:
- 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)
Meaning accountability
“The duty to provide an account of those actions for which one is held responsible”
Accountability´s 2 key duties
- to undertake certain actions in accordance with the expectations of stakeholder
- to provide an account, of those actions to the stakeholders
Accountability model involves 4 questions which influence the information which is collected and reported
- Why do the managers of an organisation decide to collect, and disclose, information about particular aspects?
- Who are the stakeholders to whom the disclosures will be directed?
- What types of information will be collected, and what will be disclosed to stakeholders?
- How should the information be disclosed?
