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topic2_class_Theories_Policies_3pp - From last week...

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1 1 From last week Identify some recent events where particular FRS have been controversial • Event: FRS 2 Topic 2: Theories of financial accounting • Reading: – Deegan Ch 3 – AASB108: Accounting policies, changes in accounting estimates and errors Lecture objectives/outline – At the end of the class you should be able to Identify and explain the various theories about accounting and its regulation Understand requirements regarding the selection and application of accounting policies 3 Accounting theory square6 Theory: boxshadowdwn a coherent group of propositions or principles forming a general framework of reference for a field of inquiry boxshadowdwn Multiple theories: provide different ways of thinking about accounting and its role and effect. square6 Theories of accounting boxshadowdwn Descriptive; normative square6 Theories about how people preparing financial reports behave boxshadowdwn Positive theory square6 Stakeholder theories square6 Regulation theories boxshadowdwn Public interest; dominance of regulatory process
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2 4 Theories of accounting square6 A. Descriptive accounting theory boxshadowdwn Described accounting practices and attempted to derive theory from them boxshadowdwn Often descriptions led to identification of anomalies, removal of options boxshadowdwn Because based on existing practices, relatively easy to gain acceptance of changes in practice boxshadowdwn Famous descriptive theorists (early-mid 1900s): square6 Hatfield; Paton and Littleton; Sanders, Hatfield and Moore 5 Theories of accounting square6 B. Normative accounting theory boxshadowdwn Prescribes how accounting should be square6 Most prominent in 1950s/60s (high inflation) square6 Key issue: changing prices; changing value of money square6 Prescriptive theories implied major changes to accounting; difficult to get acceptance boxshadowdwn Major streams of normative theories square6 Continuously contemporary accounting (CoCoA) boxshadowdwn Chambers: University of Sydney square4 Assets and liabilities at exit/selling prices; square4 Exit prices reflect entity’s ability to adapt to changing circumstances square6 Current-cost accounting boxshadowdwn One version viewed income as amount that could be withdrawn from entity and still leave the physical capital (operating capacity) intact square6 Deprival value accounting – drawn from ideas about insurance reimbursements boxshadowdwn Assets reported at the amount of loss to be incurred if an entity were deprived of an asset: consider net selling price; replacement cost and PV of future cash flows 6 Theories of accounting: legacy square6 Conceptual framework : boxshadowdwn Intended as mix between descriptive and normative approaches square6 Defines objective of accounting square6 Seeks to provide recognition and measurement rules within a ‘coherent’ and ‘consistent’ framework square6 Identifies the qualitative characteristics financial information should possess square6 Makes recommendations for practice boxshadowdwn Contains elements of both descriptive and normative approaches
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