Financial Accounting Theory And Practice Essay

If you developed a hypothesis to explain how a individuals cultural background influences how they prepare financial statements, would you waste developed a positive theory or a normative theory?The first of all, it is important to understand the mean by a theory. According to Contemporary Accounting Theory 4e,Oxford English vocabulary provides various definitions, including A scheme or system of ideas or statements held as an explanation or account of a group of facts or phenomenaA positive theory based on nigh assumptions and, through sensible deduction, enables some predictions to be made somewhat the way things exit 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 account statement 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) h eld by the researchers proposing the theories. For typeface, Chambers fare has paid attention by researchers, however, they recognised and measured in variant 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 mind 1.3What is a conceptual framework, and would it be considered to be a positive or a normative theory of invoice?According to IFRS website shows, the definition of conceptual Framework pass offs The Conceptual Framework sets out the concepts that underlie the preparation and demonstration of financial statements. It is a practical tool that assists the IASB when developing and revising IFRSs. The clinical of the Conceptual Framework project is to improve financial reporting by providing the IASB with a complete and updated set of concepts to recitation when it develops or revises stock(a)s.In endpoint of accounting, the conceptua l 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 world-wide 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 guidance 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 superior f ramework document and any previous compiled version discharge be found using the Browse for pronouncements page In the table below, the Notes pillar identifies when the framework document listed is a compiled version. Extra identifies when additional IASB supporting satisfying (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 brooding phenomenon that seems to be occurring in respect of the selection and use of particular theories. They state, there has been a strange swarming tendency, especially around authenticity theory, as well as stating that they also have a sneaking feeling that institutional theory may be access up fast as the next theory around which to herd.What do they mean by this apparent practice of herding, and what are some possible advantages and disadvantages that are related to this practice?In the give circumstance, a common phenomenon in herding is the management of some enterprises, patsy behaviour. As brusque of information and lack of understanding, it is hard for investors to make reasonable expectations of future marker uncertainty, are often extract information by observing the behaviour of those around, in which information is continuously passed, many people will be roughly the same information and reinforce each other, resulting in the herd behaviour. Herding is a kind of nonlinear mechanism of the non- sensible behaviour resulting from individual rational behaviour of the collective.The advantages of the performance of herding for the adoption of specific or temporary particular advantage concept and the way of behaviour is accepted on the long-run 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 rattling need financial accounting theory if all we are kindle in doing is developing accounting standards?In the given question, people genuinely need financial accounting theory ifpeople interested in developing accounting standards.The progresses of theories are indicate how accounting should be done, spot and explain current accounting practices, predict accounting practice, provide principles to cope into account when taking action or making decisions, and help to direct problems and deficiencies with current accounting practice and improve accounting practiceTherefore, theories can prepare accounting standards state that fair value should be use when calculating goodwill on acquisition, depreciation should be calculated on the basis of useful economic life, etc. A theory of detonating device budgeting helps us with choosing among investments a theory of gross recognition helps to determine when and how revenue should be recognised it might reveal deficienc ies in the way we in short measure profit or understanding deficiencies may promote change. Hence, the conceptual framework is used as a basis for drafting accounting standards. (Word count 150)