1) GHHT: Chapter 1: Theory in Action 1.1
The article describes how a particular theoretical approach has been replaced by another. Explain why one theory replaces another, and who, or what, determines whether an existing theory survives.
A theory is primarily meant to explain or predict an event, behaviour or outcome. Proponents of a theory look for evidence to support the theory. This evidence should be independently observed and consistent after repeated observations. Some theories are speculative or ideas or guesses floated to encourage researchers to undertake the observations required to prove or disprove the theory. The question often debated is what comes …show more content…
Current economic reality: accounting should be concerned with depicting current economic reality. Financial statements should reflect current values rather than historic ones.
An information system: focus of financial information is on users and their needs. This then necessitates the identification and determination of what constitutes useful information.
Commodity: if accounting is a public good then its production and distribution will need to be regulated in order to obtain a fair allocation of resources in the economy.
Many of these images still prevail and are still having an influence on accounting theory and practice. Decision usefulness is the objective of financial reporting underpinning the conceptual framework. Financial reporting is heavily regulated and will continue to be so in the foreseeable future. Alternative measurements to historic cost are emerging in new accounting standards.
2. Explain what is meant by positive theory.
Positive accounting theory can: * Describe what is actually happening * Explain what is happening
Positive theories are concerned with ‘what is’ and should relate to the facts or the real world through hypotheses. For example, there may be a theory about how individuals or groups actually use accounting information and this would result in predictions (hypothesis) about how we would expect information to be used by particular individuals/groups. The