1. Prepared by Arabella Volkov
University of Southern Queensland

2. Introduction
Reference
Text Chapter 1

3. Learning Objectives
At the conclusion of this lecture, you should have an appreciation of:
what is meant by ‘accounting theory’ and the purpose it has served over time
the structure of this book and how it logically sequences its discussion of accounting theory

4. Overview of Accounting Theory
What is a theory?
Hendriksen’s definition:
…the coherent set of hypothetical, conceptual and pragmatic principles forming the general framework of reference for a field of inquiry.

5. Overview of Accounting Theory
What is an accounting theory?
Hendriksen: logical reasoning in the form of a set of broad principles that:
provide a general framework of reference by which accounting practice can be evaluated and
guide the development of new practices and procedures.

6. Accounting Theory Modern concept Pacioli’s treatise
compared to mathematics or physics
Pacioli’s treatise
Double-entry accounting
Documenting process but not explaining basis for recording

7. Accounting Theory The development of accounting
theory has been mostly unstructured
Chambers:
Accounting has frequently been described as a body of practices which have been developed in response to practical needs rather than by deliberate and systematic thinking

8. Accounting Prescriptions
Developed to resolve problems as they arose – reactive
Ad hoc
Led to inconsistencies in practice
e.g. Asset revaluations
Accounting standard setters
Conceptual framework projects

9. Accounting Theory Development
Pre-1400s little accounting theory
1400s
Pacioli 1494 – Double entry
Main emphasis was on practice
Pre-theory period
1400s until 1800s

10. Accounting Theory Development
Pre-Theory Period (1400s-1800s)
Goldberg:
No theory of accounting was devised from the time of Pacioli down to the opening of the nineteenth century. Suggestions of theory appear here and there, but not to the extent necessary to place accounting on a systematic basis

11. Accounting Theory Development
General Scientific Period
1800–1955
explanations of accounting practice
theory based on observations of current practice
empirical analysis

12. Accounting Theory Development
Normative period
1956–1970
norms for best practice
what should be v. what is
Two dominant groups:
conceptual framework proponents
critics of historical cost

13. Accounting Theory Development
Normative period
End of the normative period started in the early 1970s
Unlikely a normative theory would be accepted
Availability of financial economic principles and testing methods

14. Accounting Theory Development
Specific Scientific Theory / Positive Era
1970–present day
dissatisfaction with normative theories
positive accounting theory
explain & predict
e.g. bonus plan hypothesis

15. Accounting Theory Development
Behavioural research:
Sociological implications of accounting numbers and the associated actions of ‘key players’
emerged in 1950s but despite growing acceptance, positive accounting theory still dominates

16. Accounting Theory Development
Recent Events
Corporate collapses
e.g. Enron, Worldcom
Could comprehensive theory have prevented this?
Increased legislative reporting requirements

17. Accounting Theory Timeline

18. Accounting Theory Conceptual framework – 1980s
nature and purpose of financial reporting
criteria for deciding between alternative accounting practices
SACs 1–4

19. Accounting Theory Conceptual framework – Recent Developments
Joint project between IASB & FASB
Harmonisation of accounting practices through international accounting standards

20. Summary Definition of accounting theory
Major periods of accounting theory development
Conceptual framework
Recent events

21. Key terms and concepts Accounting Theory Normative theory
Positive theory
Conceptual framework

22. Where to get more information
Other courses
List books
Articles
Electronic sources