L2 Introduction to accounting theory and theory development Flashcards
What is the key characteristic of a theory?
Makes a generalisation about events/objects.
According to Popper, how do we determine whether a theory is truly scientific?
For a statement to be a scientific theory it must be capable of being
falsified, i.e., you must be able to read the statement and deduce some occurrence, such that if that occurrence was actually observed, the theory would be false.
What is deduction?
Involves the logical derivation of propositions relating to specific events or entities from a general rule or premise. (General to Specific)
What is induction?
Involves the formulation of generalisations on the basis of the observation of specific occurences. (Specific to General)
What are two criticisms for induction?
- How do we know how many observations to make before generalising?
- Theory dependence of observation – our pre-existing views/values influence what we ‘see’ when we observe specific occurrences.
What is a primitive term and what are some examples?
The terms whose meaning is simply “assumed” and from which the substance of a theory is logically constructed. Examples in accounting include assets and liabilities.
If induction is so fallible, why not simply focus on the use of deduction?
Because there’s 2 weaknesses to the singularly deductive approach in social sciences:
- The premises upon which our deductions are based may be semantically (observationally) incorrect.
- Individuals may act irrationally, confounding logically derived predictions.
What is ontology?
A branch of metaphysics which concerns the nature of reality.
The two extreme antological positions are:
- Belief in the existence of an abstract objective reality.
- Belief that there is no absolute reality to be discovered, reality is what we believe.
What does it mean when you believe in an abstract reality?
It is where you believe there exists a real world entirely independent of our perceptions of it. This encourages the view that there are millions of “truths” out there… our task is simply to discover them.
What does it mean when you believe in a constructed reality?
It is where reality is merely belief. Philosophers and social scientists say we are unable to separate our perceptions of the world from the world itself. This view discourages the search for absolute, permanent truths.
What is a normative theory?
- It is concerned with what ‘should’ be. (AKA deductive theories).
- Normative accounting theories attempt to identify the best method of accounting (either in general or in specific circumstances)
- An example is the Conceptual Framework of Accounting
What is a positive theory?
- They don’t explicitly attempt to develop the best accounting system.
- They attempt to describe how accounting is used and why it exists in the present form.
- Predict how firms (accountants) will account for transactions given circumstances.
- Predicts/explains market or individual reaction to accounting information.
