The concept of the accounting as a theory
Essentially, the term theory is used in several ways differently (Frost el 2003: 4). Theory can take several meanings. Glauter and Underdown (2001: 15), state that the construction of a theory might require a process of reasoning related to particular issues that implicit in data under observation, as a mean of distinguishing the basic relationships. However, it could be illustrated that theory construction is a process of simplification, which needs assumption that permit the representation of reality by a generalization that it is easily understood (Bloom and Elgers, 1987: 10).
Generally, it could be illustrate that in the term of accounting, there is no particular theory in accounting as there has been considerable various theories in the financial accounting (Deegan 2001, pp2-3). In fact, however, there has not been any particular theory that accepted universally. In term of defending the meaning of the accounting theory, there are several though in term of defying the theory, as there is no particular view that how theory should be defined (Deegan et al, 2003, p5). However, the theory of accounting can be defined in different circumstances, because it might curry several meaning of things. Thus, it could be simply defined the theory of accounting as "a statement of a belief expressed in a language" (Godfry 2007, p22). Other point of view which defined the accounting theory as task which provide or obtain an understanding in order to provide a good enough explanation or prescription of 'particular phenomena' to create a basis or practice in order to cope with this issue(Gaffikin 2007, p4).
According to Frost et al (2000: 4), theory is a set of ideas which used to express and explain the real world observations. However, in related to this issue on accounting theory, as Hendrikson (1970: 1), and Chambers (1963, quoted in Frost et al, 2003, p.4) introduced definitions of the 'theory' and the 'accounting theory' which might be expedient to this concept. The both definitions are set below respectively:
"...the coherent set of hypothetical, conceptual and pragmatic principle forming the general framework of reference for a field of inquiry".
"...logical reasoning in the term of a set of broad principles that provide a general framework of reference by which accounting practice can be evaluated and guide the development of new practices and procedures".
Obviously, from the definitions mentioned above, theory can be describe simply as the logical reasoning underling a statement of a belief (Frost et al. 2003: 5). However, whether the theory is accepted or not: it should be dependent on:
- how well the reality is to be explained and predicted by a particular theory.
- how well this theory is constructed.
- how well the implications of the theory are acceptable.
What the above definitions imply is that the theory should be based on logical (coherent) reasoning. As there is no one view of a theory that would admit a particular definition universally acceptable (Gaffikin 2007, pp 4-5). However, in term of what the purposes of a theory in general and in the accounting as a science particularly are? In fact, however, it could this question answered in different ways: theory can provides the humanity (in the term of accounting and finance field) with a particular view of a phenomenon under different circumstances (Arnold and Hope, 1983:4-5), other point that the alternative theories can provide several view of the same phenomenon differently. A further purpose which is a theory is helpful to understand theoretical underpinnings in order to be possible to critical the same phenomenon, as the accounting is a social wscience ( which means that the accounting is a social practice as there is no particular measurement that it could be applied), and therefore, there is no particular truth in this field.
The different aspects of accounting theory
According to the many authors in the accounting field; Deegan and Unerman (2006:2-8) for example, state that the accounting theories do different tasks; they do not only seek to provide prediction or explanation based on a particular phenomenon, but also they prescribe what should be done (which is opposed to describing or predicting what is done) in particular circumstances, as the different accounting theories are shown in Fugger . However, as it mentioned before, in term of accounting as a science: there is no particular theory accepted universally. In fact, as Deegan (2001: 4-5), reports that any universally agreed perspective of the accenting how to be develop. Therefore, this might because those different researches have different perspective in term of the role of accounting theory, and also that what is the core role or object of financial accounting should be.
As an example of the different view of accounting researches; there are many researches think that essential role of the accounting theory should to explain or predict particular phenomenon related (positive theories) - (for instance, to explain why several accounts prefer a particular method, whereas other accountants might chose another or alternative manner) (Ibid: 6). Comparatively, other researches might consider that the accounting theory's role is to prescribe (Normative theories) - (which is opposed to describe) particular manner to accounting( as an example of this; that kind of theory/ theories prescribe particular assets that should be valued as the market value set rather than historical costs) (Deegan 2001: 4-5).
The Normative theories in accounting: the case for changing the prices
Obviously, as mentioned before, that normative theories do not explain or describe a particular phenomenon as what is occurring, but inkstand of that: theses theory make suggestions or recommendations about what should be, In other words, they are the theories that provide prescriptions concerned to what should occurred ( Dever et al, 2007: 11). However,
Current purchasing power accounting (CPPA)
This approach was a consequence of the early works by Sweeny (1936). Since that, it has been favored by many accounting researches (Deegan at al, 2003). The CPPA has also been supported internationally by several professional accounting bodies (as it more in the form of supplementary disclosures to accounting financial statements which prepared consistent with the principle of historical cost accounting) (Deegan 2001). However, the core concept of the (CPPA) that it was developed on the basis of the idea that during the rising prices period (Inflation) that if an entity ware to take part of unadjusted profit which based on historical costs, and therefore the consequences might reduce the real value of this entity: because that the entity could cause a risk distributing part of its capital in the real in the real term (ibid: 128).
Under the consideration of the accounting development in term of changing the prices, the majority of research initially related to restating historical costs to account for changing prices by using historical cost accounts as the basis, but restating the accounts by use of particular price indices ( Frost et al 2003:140-141).
However, in term of applying the level accounting of general prices, it must be apply the priced index, as the price index is a weighted average of the current prices of both goods and services which can be relative to a weighted average of prices in a particular period, which is often considered as a base period (Deegan 2003: 129). However, price indices might relate to changes in pricing of a particulate asset in a particular industry (which as a specific price index). Alternatively, they might base on a broad cross-section of particular goods and services which could be consumed (the general price index, such as in the UK (CPI) which is the Consumer Price Index).
According to Deegan et al (2006:129), in term of explaining one of the common ways which indices might be constructed, it could considered the following example which investigates how the CPI s determined, for that purpose, there are three sorts of commodities are assumed (A, B and C), as consumed in a base year quantities priced as following:
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