Chapter 1 - Theory

Question 1

Theory

Answer 1

Theory is a scheme or system of ideas or statements held as an explanation or account of a group of facts or phenomena.

Question 2

Theory can be developed mainly through two approaches, explain these in a accounting context.

Answer 2

Deductive approach: Applied to accounting, the deductive approach begins with basic accounting propositions or premises and proceeds to
derive by logical means the accounting principles that serve
as guides and bases for the development of accounting
techniques.

Inductive approach: Applied to accounting, the inductive approach begins with observations about the financial information of business
enterprises and proceeds to construct generalizations and
principles of accounting from these observations on the
basis of recurring relationships.

Question 3

How are different theories useful?

Answer 3

Different theories have different roles and purposes and provide
different insights into – or ’lenses’ through which to view – the
practice of accounting. Learning about different theories will
allow us to have a more comprehensive perspective of the
potential roles, or influence, of accounting within society and
upon particular stakeholders. No accounting theory can provide
a complete understanding of the practice of accounting.

Question 4

Define normative theories

Answer 4

Provide prescription about particular phenomena
* The ‘worth’ of the theory is not evaluated on the basis of
empirical data
* Based on the norms or values or beliefs held by the
researcher proposing the theories
* It is usually based on a process of deduction rather than
induction

Question 5

Define positive theories

Answer 5

Seek to explain and predict particular phenomena
* The ‘worth’ of the theory is evaluated on the basis of
empirical data – that is, on the basis of the correspondence
between ‘real world’ observations and the theoretical
predictions generated by the theory

Question 6

Define grounded theories

Answer 6

• A theory that is developed through the collection and
  analysis of data and which involves the application of
  inductive reasoning. Ideas, concepts and, ultimately, a theory emerge from the data.
• When developing grounded theory, the author does not
  commence with a theory
• Grounded theory is particularly appropriate when little is
  known about a phenomena

Question 7

Parsimonious

Answer 7

A theory that performs as well as other theories but, relative to alternative theories, has fewer assumptions and variables.

Question 8

Falsifiable

Answer 8

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

Question 9

Generalisability

Answer 9

is concerned with whether research findings can be generalised beyond the specific context in which the research was conducted.