1 Positive Accounting Theory
Positive accounting theory is arguably an explanatory of accounting practice; economic based theory. RL Watts and JL Zimmerman developed positive accounting theory in 1980s at the William E School of Administration at the Rochester University. People do not know what they want at times. So there are different options available to accountants. There are some logical facts to choose one specific method. On choosing one specific method, accountants will maximize their own benefit first, and then company benefit, shareholder benefit and at last social benefits. A specific method will allow accountants to feel better to do their work as they like them the way they know and they way they are best at doing (Jayne Godfrey). For instance, accountant will write accumulated depreciation on asset value side for big company whereas when a poor balance sheet, it is better to put accumulated depreciation on credit side, so the company will have extra money in their debit (Ken Leo, John Hoggett, 2012). Accountants will use choice of accounting method depending on the situation. Positive accounting theory consists of different types of hypothesis such as bonus plan, political cost and debt hypothesis, which allow the managers to choose one specific method over another. It is accountants’ theory and it is descriptive and accountants will tell what to record.
1.1 Main Focus
Positive accounting theory efforts to explain the following
1. Managers’ choice of particular accounting method, in terms of self-interest.
2. The relationship between shareholders, employees, clients and etc.
3. The way in which financial accounting system can minimize cost by affiliating competing interest.
2 Agency Theory
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... can use accounting handbook during the circumstances, where they need information. Accountants want individual choice of method, which give them a freedom to do work, more confident to do work. Different people have various way to explain, different ways to understand things. So, it is always better to perform what people specialized at doing. Accountant is same as other group of people, the way they like, and accountants do better. The entire accountants have one and same results in spite of using different individual choice of method as they all follow same equation and accounting handbook. The benefit to the accounting society is provided by accountant using particular method of accounting.
6 References
AASB, Australian Accounting Standards Board, Statement of Accounting Concepts SAC4 ‘Definition and recognition of the elements of financial stat
Financial Accounting Standards Board (FASB). Accounting Standards Codification TM. Financial Accounting Standards Board (FASB), 2010. Web. 16 May 2014.
Wolk, H., Dodd, J., & Tearney, M. (2003). Accounting Theory: Conceptual Issues in a Political and Economic Environment (6th edition ed.). South-Western College Pub.
Marshall, D. H., McManus, W. W, & Viele, D. (2002). Accounting: What the Numbers Mean. 5th ed. San Francisco: Irwin/McGraw-Hill.
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