Accounting Theory: A Statement Of Basic Accounting Theory

In 1966, A Statement of Basic Accounting Theory (ASOBAT) was published in the United States. After the publication of ASOBAT, fundamental changes had occurred. These changes indicated the growth of intellectual. However, these changes also brought some concerns because there was no simple theoretical answer to some of the professional problems.

In 1973, there was a project initially commissioned by the Executive Committee of the American Accounting Association. The intention of that project was to ‘write a statement that would provide the same type of survey and distillation of current thinking on accounting theory as A Statement of Basic Accounting Theory (ASOBAT) provided in an earlier decade.’(p.ix) In 1977, Committee on Concepts and Standards for External Financial Reports wrote this book in response to that project. This book consists of five chapters. I would lay more emphasis on analyzing chapter 3 because I think these issues still apply in today’s accounting profession.

Chapter 1 - Introduction: ‘In the view of this committee, a single universally accepted basic accounting theory does not exist at this time.’(p.1). This is because that ‘the existence of basic differences in the way various theories view users and the preparer-user environments.’(p.3). Therefore, what the Committee tries to seek is ‘a theory that is general enough to cope with this variety and specific enough to offer assistance to accounting policy makers.’(p.3) However, none of the available theories is acceptable to all accountants.

Chapter 2 - Alternative Theory Approaches: The Committee has classified three basic theoretical approaches: (1) classical models; (2) decision usefulness; and (3) information economics. The first approach could also be ca...

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Chapter 5 - Implications: The final chapter gives three messages to researchers and future research activities. (1) theory closure cannot be dictated; (2) external reporting theory has a wider scope than that which has been generally perceived; and (3) all theory approaches are flawed when viewed from the perspective of some alternative approach. This chapter also gives a central message to policy makers: until consensus paradigm acceptance occurs, the utility of accounting theories in aiding policy decision is partial. After reading these four messages and together with what I have read in the previous four chapters, I can easily understand the last three messages as they are quite straightforward. However, for the first message, I am not sure what ‘theory closure’ means. I assume it means a tendency for all people to agree on a theory and reach a consensus.