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GODFREYHODGSON

HOLMES

TARCA

CHAPTER 2

ACCOUNTING THEORYCONSTRUCTION

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Pragmatic theories

Descripti e pragmatic approach!• "ase# o$ o"ser e# "eha io%r o&

acco%$ta$ts• theor' #e e(ope# &rom ho)

acco%$ta$ts act i$ certai$ sit%atio$s• teste# "' o"ser i$g )hether

acco%$ta$ts #o act i$ the )a' thetheor' s%ggests

• is a$ i$#%cti e approach

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Pragmatic theories

Ps'cho(ogica( pragmatic approach!• theor' #epe$#s o$ o"ser atio$s o& the

reactio$s o& %sers to the acco%$ta$ts,o%tp%ts

• a reactio$ is ta/e$ as e i#e$ce thatthe o%tp%ts are %se&%( a$# co$tai$

re(e a$t i$&ormatio$

0

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Pragmatic theories

• Criticisms o& the ps'cho(ogica(pragmatic approach! – some %sers ma' react i$ a$ i((ogica( ma$$er – some %sers might ha e a preco$#itio$e#

respo$se – some %sers ma' $ot react )he$ the' sho%(#

• Theories are there&ore teste# %si$g(arge samp(es o& peop(e

1

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S'$tactic a$# sema$tictheories

• Sema$tic i$p%ts are the tra$sactio$sa$# e2cha$ges recor#e# i$ o%chers3

4o%r$a(s a$# (e#gers

• The i$p%ts are the$ ma$ip%(ate# o$the "asis o& the premises a$#ass%mptio$s o& historica( costacco%$ti$g

5

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S'$tactic a$# sema$tictheories

• Criticise# "eca%se there is $oi$#epe$#e$t empirica( eri-catio$ o&the ca(c%(ate# o%tp%ts

• The o%tp%ts ma' "e criticise# &orpoor s'$ta2 i$acc%rate e6g6 #i7ere$tt'pes o& mo$etar' meas%res area##e# together

8

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S'$tactic a$# sema$tictheories

• The o%tp%ts ma' "e s'$tactica(('acc%rate "%t $e erthe(ess "e

a(%e(ess #%e to a (ac/ o& sema$ticacc%rac' 9a (ac/ o& correspo$#e$ce)ith rea(:)or(# e e$ts3 tra$sactio$sor a(%es;

<

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e2amp(e

• =he$ a compa$' reports "etterprospects tha$ pre io%s('3 i$ estors&orce that compa$',s share price toi$crease

• Metcash is a compa$' that hasreporte# "etter ear$i$gs per share

tha$ pre io%s('• I$ estors &orce# Metcash share prices

to i$crease>

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S'$tactic a$# sema$tictheories

• Historic cost acco%$ti$g ma' pro#%ce?acc%rate, o%tp%ts "%t )hich$e erthe(ess ha e (itt(e or $o %ti(it'

• That is3 the' are $ot %se&%( &oreco$omic #ecisio$ ma/i$g e2cept to

eri&' acco%$ti$g e$tries

@

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Normati e theories

• @>1 s a$# @>5 s ?go(#e$ age, – po(ic' recomme$#atio$s – )hat should "e – co$ce$trate# o$ #eri i$g!

• true income (proft)• practices that enhance decision-

use ulness – "ase# o$ a$a('tic a$# empirica( propositio$s

@@

Financial statements should mean whatthey say

Financial statements should mean whatthey say

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Normati e theories

• Decisio$ %se&%($ess! – the "asic o"4ecti e o& acco%$ti$g is to

ai# the #ecisio$:ma/i$g process o&certai$ ?%sers, o& acco%$ti$g reports "'pro i#i$g %se&%( acco%$ti$g #ata

@.

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Normati e theories

The #ecisio$ process

@0

Accountingsystem of

company X

Accountingsystem of

company X

Predictionmodel of

user

Predictionmodel of

user

Decisionmodel of

user

Decisionmodel of

user

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Positi e theories

• E2pa$#e# #%ri$g the @>8 s• Base# o$ ?e2perie$ces, or ?&acts, o&

the rea( )or(#• E2p(ai$ the reaso$s &or c%rre$t

practice

• Pre#ict the ro(e o& acco%$ti$gi$&ormatio$ i$ #ecisio$:ma/i$g

@1

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Positi e theories

• The mai$ #i7ere$ce "et)ee$$ormati e a$# positi e theories isthat – $ormati e theories are prescripti e – positi e theories are #escripti e3

e2p(a$ator' or pre#icti e

@5

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Di7ere$t perspecti es

• Scie$ti-c approach! – has a$ i$here$t ass%mptio$ that the

)or(# to "e researche# is a$ o"4ecti erea(it'

– is carrie# o%t "' i$creme$ta( h'potheses – has a$ imp(ie# ass%mptio$ that a goo#

theor' ho(#s %$#er circ%msta$ces thatare co$sta$t across -rms3 i$#%stries a$#time

@8

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Di7ere$t perspecti es

• Criticism o& the scie$ti-c metho#! – (arge:sca(e statistica( research te$#s to

(%mp e er'thi$g together – it is co$#%cte# i$ e$ iro$me$ts that are

o&te$ remote &rom the )or(# o& or theco$cer$s o& acco%$ta$ts

@<

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Di7ere$t perspecti es

• Nat%ra(istic approach! – imp(ies that there are $o preco$cei e#

ass%mptio$s or theories

– &oc%ses o$ -rm:speci-c rea(:)or(# pro"(ems• Nat%ra(istic research starts &rom speci-c

rea(:)or(# sit%atio$s the mai$ i$te$tio$

is to a$s)er the +%estio$ )hat is goi$go$ here 3 $ot to pro i#e ge$era(isa"(eco$#itio$s &or )i#e segme$ts o& societ'

@>

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Di7ere$t perspecti es

• A(ter$ati e )a's o& (oo/i$g at the)or(#!

*

CATEGORY ASSU PT!O"

#$ Reality as a concrete structure%$ Reality as a concrete process&$ Reality as a conte'tual field of information($ Reality as a sym)olic discourse

*$ Reality as a social construction+$ Reality as pro,ection of -uman imagination

CATEGORY ASSU PT!O"

#$ Reality as a concrete structure%$ Reality as a concrete process&$ Reality as a conte'tual field of information($ Reality as a sym)olic discourse*$ Reality as a social construction+$ Reality as pro,ection of -uman imagination

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Categor' @

• Researchers ass%me that a(( ma$agersaim to ma2imise their perso$a( )ea(th a$#that the' are a)are o& ho) the' ca$ %se

acco%$ti$g tech$i+%es to #o so• Researchers pre#icts that a(( ma$agers

"eha e i$ the same ma$$er "eca%se the'ha e share# a ie) o& the )or(# a$# o& theo%tcomes o& their actio$s a$# "eca%sethe' share pre&ere$ces &or partic%(aro%tcomes

*@

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Categor' 5

• H%ma$s are $ot e2pecte# to "eha eaccor#i$g to a set o& "eha iora( r%(es thatapp(' to e er'o$e e+%a(('

• A(tho%gh i$#i i#%a(s ma' "eha e ratio$a(('accor#i$g to their perso$a( %$#ersta$#i$go& the )or(# a$# o& the o%tcomes o&partic%(ar actio$s3 the' #o $ot share acommo$ %$#ersta$#i$g o& ho) the )or(#)or/s3 a$# the' ha e #i7ere$t pre7ere#o%tcomes &rom their #ecisio$s

**

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Di7ere$t perspecti es

• For categories @ . it is moreappropriate to %se the scie$ti-capproach

• For categories 0:5 the $at%ra(isticapproach is more appropriate

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Di7ere$t perspecti es

*0

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Scie$ti-c approachapp(ie#

to acco%$ti$gMisco$ceptio$s o& p%rpose• Ma/e scie$tists o%t o& acco%$ti$g

practitio$ers• Researchers practitio$ers• The #esire &or ?a"so(%te tr%th,

*1

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Scie$ti-c approachapp(ie#

to acco%$ti$g• The scie$ti-c metho# #oes $ot c(aimto pro i#e ?tr%th,

• It attempts to pro i#e pers%asi ee i#e$ce )hich ma' #escri"e3e2p(ai$ or pre#ict

*5

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Iss%es &or a%#iti$gtheor' co$str%ctio$

• A%#iti$g is a eri-catio$ process thatis app(ie# to the acco%$ti$g i$p%tsa$# processes

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Iss%es &or a%#iti$g theor'co$str%ctio$

• A%#itors pro i#e a$ opi$io$ o$ – )hether the -$a$cia( stateme$ts accor#

)ith the app(ica"(e reporti$g &rame)or/ – )hether the stateme$ts gi e a tr%e a$#

&air ie)

*<

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Iss%es &or a%#iti$gtheor' co$str%ctio$

• The $ormati e era o& acco%$ti$gcoi$ci#e# )ith a $ormati e approachto a%#iti$g theor'

• The positi e ere o& acco%$ti$g has(e# to a positi e approach to a%#iti$gtheor'

*>

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S%mmar'

• Ma$' #i7ere$t approaches to theor'&orm%(atio$ i$ acco%$ti$g

• E o(%tio$ o& acco%$ti$g theor' – positi e 6 $ormati e – scie$ti-c 6 $at%ra(istic

.

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e' terms a$# co$cepts

• Descripti e pragmatic approach• Ps'cho(ogica( pragmatic approach• S'$tactic a$# sema$tic theories

• Historica( cost acco%$ti$g• Normati e theories• Positi e theories• Scie$ti-c approach to theor'

• Nat%ra(istic approach to theor'• A%#iti$g theor'

.@

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*