topic2_class_Theories_Policies_3pp

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 s Theory: b a coherent group of propositions or principles forming a general framework of reference for a field of inquiry b Multiple theories: provide different ways of thinking about accounting and its role and effect. s Theories of accounting b Descriptive; normative s Theories about how people preparing financial reports behave b Positive theory s Stakeholder theories s Regulation theories b Public interest; dominance of regulatory process
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2 4 Theories of accounting s A. Descriptive accounting theory b Described accounting practices and attempted to derive theory from them b Often descriptions led to identification of anomalies, removal of options b Because based on existing practices, relatively easy to gain acceptance of changes in practice b Famous descriptive theorists (early-mid 1900s): s Hatfield; Paton and Littleton; Sanders, Hatfield and Moore 5 Theories of accounting s B. Normative accounting theory b Prescribes how accounting should be s Most prominent in 1950s/60s (high inflation) s Key issue: changing prices; changing value of money s Prescriptive theories implied major changes to accounting; difficult to get acceptance b Major streams of normative theories s Continuously contemporary accounting (CoCoA) b Chambers: University of Sydney S Assets and liabilities at exit/selling prices; S Exit prices reflect entity’s ability to adapt to changing circumstances s Current-cost accounting b One version viewed income as amount that could be withdrawn from entity and still leave the physical capital (operating capacity) intact s Deprival value accounting – drawn from ideas about insurance reimbursements b 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 s Conceptual framework : b Intended as mix between descriptive and normative approaches s Defines objective of accounting s Seeks to provide recognition and measurement rules within a ‘coherent’ and ‘consistent’ framework s Identifies the qualitative characteristics financial information should possess s Makes recommendations for practice b Contains elements of both descriptive and normative approaches
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3 7 Theories about the behaviour of people preparing financial reports s Positive accounting theory (PAT) b Challenged normative theories as subjective; untestable; theorists’ assertions about what accounting should be
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This note was uploaded on 08/27/2011 for the course ACCT 2011 taught by Professor D during the Three '11 term at University of Sydney.

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topic2_class_Theories_Policies_3pp - From last week...

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