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IM_CH_02 - Chapter 2 Accounting Theory and Accounting...

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Chapter 2: Accounting Theory and Accounting Research Instructor’s Manual 7 th edition Page 1 of 9 C HAPTER H IGHLIGHTS The chapter gives the student an appreciation of the contribution of research to the general growth of our knowledge about accounting and those that it affects as well as its contribution to the standard-setting process in financial accounting. The chapter centers upon the role of deductive and inductive reasoning and how they relate to financial accounting. It is also important to stress that these methods are complementary and not either/or in orientation. It is important to stress that empirical research generally looks at fairly small and manageable types of questions. It thus can provide input to the standard-setting process. Making accounting rules, however, must still be seen as a normative function. The chapter also stresses that empirical research cannot be value-free. Values are embedded in the questions that are asked and the parameters that are used in attempting to measure phenomena. Given the rise of formal approaches to theory and a concern for the process of measurement discussed in Chapter 1, the question arises as to whether accounting is an art or a science. A science might be defined as a discipline or area where considerable measurement problems exist. In the physical and natural sciences, there should be a high degree of consensus among measurers. This will be less the case in the social sciences simply because of the variability of human behavior. Nevertheless, they should come under the domain of science. Accounting could certainly move closer to the science realm as a result of the rise of scientific method and the concern for measurement. The chapter also briefly discusses accounting research directions or trends. These are expanded throughout the text. The chapter closes with a look at the question, stemming from Kuhn, concerning whether a “scientific revolution” is occurring in accounting. At this time, the answer appears to be a fairly clear “maybe.” The included Microsoft PowerPoint, revolutions and paradigms.ppt, references an article from The Wall Street Journal , that suggests the beginnings of a paradigm shift. Q UESTIONS Q-1 Do you think that the work of a policy-making organization such as the FASB or the SEC is normative (value-judgment oriented) or positive (oriented toward value-free rules)? Discuss. It is unquestionably normative because judgments must be made in accordance with objectives or other criteria. While a standard-setting group may attempt to be neutral, it usually must decide among different positions, each of which will have its adherents. A standard-setting organization may use empirical research (which attempts to be descriptive or positive) as part of its input into the standard-setting process. Ijiri has used the term “policy science” to describe financial accounting.
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