If you have ever wondered what accounting theory is, read on! These fundamental principles help accountants produce more accurate and efficient financial statements. The purpose of accounting is to provide organizations with critical financial information that will aid in strategic planning and decision-making. Accountants also benefit from knowledge of accounting theory because it helps them keep their financial records organized, accessible, and accurate. Moreover, it can provide them with a broader perspective on accounting and the role of an accountant.
Accounting writers have used different methods for forming the theories. Some writers have largely followed the deductive process, while others have used more flexible or exiomatic techniques. The deductive process suggests that the purpose of an accountant’s work is to provide information about relevant economic events. The user then must fit the events into their decision model. This process is based on assumptions about human behavior. But, as we shall see, the deductive process is not sufficient to produce an accurate accounting theory.
Accounting theory focuses on the structure and behavior of accounting practitioners. It begins with observable occurrences and translates them into money values and symbolic forms. From there, the accountant manipulates these inputs in a formal accounting system, generating financial statements. Although accounting theory is based on reason, there is no consensus about what is useful. Therefore, the debate continues. A few important theories have emerged in recent decades. In 1922, William A. Paton published Accounting Theory With Special Reference to Corporate Enterprise. The theory of accounting has been studied ever since. Other writers include Henry Rand Hatfield and Sidney S. Alexander.
Although accounting has existed for centuries, businesses and economies have continued to develop. These changes have made accounting theory constantly adaptable. Today, organizations such as the International Accounting Standards Board help develop practical applications of accounting theory and modify International Financial Reporting Standards. Certified Public Accountants help companies meet these changes and stay abreast of accounting theory. This article will highlight the concepts that are most important to accounting. But before diving in, it is important to know a little bit about the history of accounting theory.
The sociological and ethical approaches to accounting theory differ in how they view the nature of the profession. Positive accounting theory, for instance, does not advocate particular accounting practices. It aims to predict whether firms will use particular methods of valuing assets. While positive accounting theory doesn’t prescribe particular methods of valuing assets, it does not say which method is better. The authors of these two theories have written extensively on positive accounting theory. This theory emphasizes social welfare and evaluates accounting techniques based on the needs of various groups within society.
The decision-usefulness theory, on the other hand, focuses on the use of information by different individuals. In other words, behavioural theory focuses on the usefulness of information to different decision-makers. It seeks to measure the psychological and sociological impact of alternative accounting methods. In addition to addressing economic and behavioural effects, decision-usefulness theory addresses two major questions related to the use of financial statements. The first is who is the user of accounting information? How do we categorize these individuals? In addition, it examines the influence of external reports on management decisions.