Lecture Week1a.pptx - TASMANIAN SCHOOL OF BUSINESS AND...

TASMANIAN SCHOOL OF
BUSINESS AND ECONOMICS
BFA302 Accounting Theory
Week 1 – An introduction to accounting
theory

Learning objectives
1.1 Understand that there are many theories of financial
accounting.
1.2 Understand how knowledge of different accounting
theories increases our ability to understand and evaluate
various alternative financial accounting methods.
1.3 Understand that the different theories of financial
accounting are often developed to perform different
functions, such as to describe accounting practice, or to
prescribe particular accounting practices.
1.4 Understand that theories, including theories of accounting,
are developed as a result of applying various value
judgements and that acceptance of one theory in
preference to others will in part be tied to one’s own value
judgements.

Learning objectives (cont.)
1.5 Be aware that we should critically evaluate theories (in
terms of such things as the underlying logic,
assumptions made and evidence produced) before
accepting them.
1.6 Understand some alternative perspectives about how
knowledge develops across time.
1.7 Understand why students of accounting should study
accounting theories as part of their broader accounting
education.

We are studying financial accounting
theory but… what is a theory?
•
A coherent set of hypothetical, conceptual and
pragmatic principles forming the general framework of
reference for a field of inquiry
(Hendriksen 1970, p.1)
•
A scheme or system of ideas or statements held as
an explanation or account of a group of facts or
phenomena
( The Oxford English Dictionary )
•
Based on logical (coherent) reasoning, and not ad
hoc in nature
•
Different to a ‘hunch’
continued

What is a theory? (cont.)
• A theory could be based on numerous observations ( inductive reasoning )
or developed on the basis of logic ( deductive reasoning )
•
Could be ‘positive’ or ‘normative’
•
Theories can help us make sense of the world in which we live and can
provide a structure to understand our (social) experiences
•
What makes a theory a ‘good’ theory?
continued

What is a theory? (cont.)
Llewelyn (2003, p. 665) states that:
Theories impose cohesion and stability. So that whenever
‘life’ is ambiguous (which is most of the time!) people will
work at confronting this ambiguity through ‘theorizing’. Also,
because ‘life’ and situations commonly have multiple
meanings and give rise to different assessments of
significance, everyone has a need for ‘theory’ to go about
their everyday affairs. ‘Theories’ do not just reside in
libraries, waiting for academics to ‘dust them down’; they
are used whenever people address ambiguity, contradiction
or paradox so that they can decide what to do (and think)
next. Theories generate expectations about the world.

Accounting theories
• Accounting is a human activity (if no humans then no
‘accounting’)
•
It would seem illogical to study financial accounting (for
example, the accounting standards) without also studying
accounting theory
•
Theories of accounting consider:
–