Financial Accounting Theory And Practice Essay

If you unquestionable a theory to explain how a persons pagan background influences how they prepare financial statements, would you have developed a commanding theory or a normative theory?The first of all, it is important to extrapolate the mean by a theory. According to Contemporary Accounting Theory 4e,Oxford English Dictionary provides various definitions, including A scheme or organisation of ideas or statements held as an explanation or account of a group of facts or phenomenaA positive theory found on some assumptions and, through and through logical deduction, enables some predictions to be made about the way things leave alone be. In particular, their success in explaining or predicting particular phenomena will then typically be assessed based on observation. For instance, Watts and Zimmermans positive theory of accounting system relying on the other researchers such as Jensen and Meckling (1976) and Gordon(1964).A normative theory based on the norms (or determine or beliefs) held by the researchers proposing the theories. For example, Chambers issue has paid attention by researchers, however, they recognised and measured in different ways.If I developed a theory to explain how a persons cultural background influences how they prepare financial statements, I will develop a positive theory. (Word count 170)QUESTION 2 Question 1.3What is a abstract framework, and would it be considered to be a positive or a normative theory of accounting?According to IFRS website shows, the definition of Conceptual Framework follows The Conceptual Framework sets out the concepts that underlie the preparation and presentation of financial statements. It is a practical tool that assists the IASB when underdeveloped and revising IFRSs. The objective of the Conceptual Framework project is to improve financial reporting by providing the IASB with a complete and updated set of concepts to use when it develops or revises standards.In term of accounting, the concep tual framework of accounting should be considered as a normative theory of accounting. Because of a normative theory based on the norms (or values or beliefs) held by the researchers proposing the theories. (Word count111)QUESTION 3 Question 1.27 (NEW)The International Accounting Standards Board has a number of roles, including formulating accounting standards and developing a conceptual framework. Is the work they do in developing an accounting standard or the conceptual framework normative or positive in nature?In the given circumstance, the conceptual framework of accounting is an example of a normative theory of accounting. Relying on various assumptions about the types or attributes of information useful for decision-making, The CFA provides counselor on how assets, liabilities, expenses, income and equity should be defined, when they should be recognized, and ultimately how they should be measured.It also shows in Australia Accounting Standards Board (AASB) website, The orig inal framework document and any preceding compiled version can be found using the Browse for pronouncements page In the table below, the Notes column identifies when the framework document listed is a compiled version. Extra identifies when supernumerary IASB supporting material (e.g. Basis for Conclusions) is available. (Word count 117)QUESTION 4 Question 1.33 (NEW)In this chapter we provided quotes from Gray, Owen and Adams (2010), in which they discuss an apparent herding phenomenon that seems to be occurring in respect of the plectron and use of particular theories. They state, there has been a strange herding tendency, especially around legitimacy theory, as well as stating that they also have a sneaking feeling that institutional theory may be coming up fast as the next theory around which to herd.What do they mean by this apparent pattern of herding, and what are some possible advantages and disadvantages that are related to this practice?In the give circumstance, a comm on phenomenon in herding is the management of some enterprises, marker behaviour. As inadequate of information and lack of understanding, it is hard for investors to make reasonable expectations of future marker uncertainty, are often invite out information by observing the behaviour of those around, in which information is continuously passed, many people will be roughly the same information and strengthen each other, resulting in the herd behaviour. Herding is a kind of nonlinear mechanism of the non-rational behaviour resulting from individual rational behaviour of the collective.The advantages of the performance of herding for the adoption of specific or temporary situation advantage concept and the way of behaviour is accepted on the long-term nature of the dominant idea and behaviour way. However, people will follow the public agree, to their own opinions with default negation, and not subjective thinking about the meaning of events. (Word count 149)QUESTION 5 Question 1.35 (NEW)Do we in truth occupy financial accounting theory if all we are interested in doing is developing accounting standards?In the given question, people really need financial accounting theory ifpeople interested in developing accounting standards.The progresses of theories are indicate how accounting should be done, describe and explain up-to-the-minute accounting practices, predict accounting practice, provide principles to take into account when taking action or making decisions, and help to identify problems and deficiencies with current accounting practice and improve accounting practiceTherefore, theories can prepare accounting standards state that fair value should be used when calculating goodwill on acquisition, dispraise should be calculated on the basis of useful economic life, etc. A theory of capital budgeting helps us with choosing among investments a theory of revenue course credit helps to determine when and how revenue should be recognised it might reveal def iciencies in the way we presently measure profit or understanding deficiencies may advance change. Hence, the conceptual framework is used as a basis for drafting accounting standards. (Word count 150)