Positive Accounting Theory: A Ten-Year Perspective

This study report evaluates the trends and current status of positive literature on accounting, focusing on the article by Watts and Zimmerman (1990). It discusses the evolution of positive accounting theory and its analysis over a ten-year period.

Positive Accounting Theory:
A Ten-Year Perspective

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
REVIEW OF LITERATURE..........................................................................................................3
OVERALL ANALYSIS..................................................................................................................4
RECOMMENDATION & CONCLUSION....................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
The overall study report is concentrated on evaluating the article and journal that analysed
trends and current status of positive literature on the accounting. These chosen article “Watts and
Zimmerman” (1990), had provided analyses, critiques, including perspectives on positive
accounting principle, critical aspect of view evaluation of political as well as social declarations,
and identification of multiple accounting theory factors. This study presented a report on overall
discussion of positive accounting hypotheses and their analysis over a given timeframe. The
main discussion had outlined brief accounting principles review report as well as the evolution of
its factors. The overall study, supported by financial structures and concepts,
outlined development and analysis of overall positive accounting theory including income
determinants.
REVIEW OF LITERATURE
Literature analysis review is a brief overview of all article chosen for this specific project
study. The overview analysis concerning all the article selected is as follows:
The selected article review is focused on the evaluation of positive accounting methodology
critical analysis (Watts and Zimmerman, 1990). This also offered a recommendation as to the
nature of updated accounting practices and the value of the firm's contracting costs. This paper
had reviewed everything about identifying the progress in the creation of various accounting
framework, which calculated the defects in the organisation's accounting standards. this also
demonstrated the relations among accounting theories and empirical research via various
statistical analyses. The conceptual and researched aim in this study is to demonstrate the
specific needs to adjust accounting policies in order to clarify the various actions undertaken –
including the behaviours of the stakeholders – by corporation management. PAT literature
concentrates on overall financial reporting management objectives, the usage of economic
modelling and statistical analysis where agency expenditures and imbalance of knowledge exist.
It seeks to clarify and forecast company accounting preferences as parts of the broader need for
the company to reduce its capital expenditure and many other contractual expenses,
implementing economic strategies and tools (Avelé, 2014). In positive study, opportunistic
behaviours and actions of executives and their effect on accounting policies decisions were
widely studied, resulting in a diverse collection of analytical earnings management findings.

PAT has strengthened the comprehension of the multiple accounting trends and problems. This
has, for instance, provided valuable insights into connection among accounting figures and stock
yields and fiscal reporting opportunities from leadership. Notwithstanding this, its exposure to
accounting practices is quite restricted. Over a wider period, accounting practices has evolved
out through interplay of a multitude of variables and the mechanism of improving accounting
practices has been gradual. Over the past several decades, the PAT became most important
accounting research initiatives (Shaheen, 2012). One significant argument always had to make
their approach more famous and credible is that opinion is the similar as in the science about
accounting theory. Therefore, it is crucial to look how far the accounting in emulating natural
sciences has been effective as well as how PAT creation is compared to three traditional
scientific accounts. This article demonstrates that accounting cannot replicate natural science's
performance. In addition, no traditional science accounts correspond to PAT's conceptual role
(Kaya, 2017). Nonetheless, the results of constructive accounting research guided discussions on
critical accounting concerns. Positive accounting analysis for instance has helped to shape recent
debate about fair value. Discussion about fair value focuses around whether fair value can be
included in financial reports as a calculation factor. A market value argument is quite old indeed.
Nevertheless, scientific data now exists about the advantages and disadvantages of calculating
fair value. A value-relevance research, for instance, has recorded that overall fair value of
the assets in certain situations is essential (Santoso and br Sebayang, 2017).
OVERALL ANALYSIS
The analysis of the modern accounting demonstrates that the constructive accounting approach
has been updated several times over the years. The study found that key concerns were linked to
the appropriate measurement, ratio, and documentation of fiscal information in this sense. The
development of accounting systems was one first approaches to representing accounts which,
owing to its particular path, unable to produce reliable data. They did not have data on stock
assessment, cost estimation and depreciation provisioning. Reliability has been achieved through
the progression of double entry book-keeping framework, where frauds and errors have been
removed with the elimination of asset misapplication. This called for the introduction of the
framework for reporting the accounting in GAAP layout to assess reliability of business
information periodicity (Isa, 2014). Nevertheless, the delegated assets accounting approach was
achieved by introducing account auditing. Positive accounting analysis revealed that PAT's

tactical role could seek no alternative to fraud and accounting options described. The
introduction of accounting policies has been introduced to enhance the efficiency of description
of overall PAT theory's aspects. The same setting and involvement of institutions in various
countries cannot achieve the same outcomes. Existence in the multiple countries compelled the
businesses to address the constructive accounting principle in order to decrease the ambiguity of
the accounting reports. Understanding the various accounting techniques was important in this
journal to make financial report accurate (Setyorini and Ishak, 2012).
Normative accounting study is the prevailing trend of accounting study prior to the
advent of PAT. The Normative-accounting researchers were concerned with evolving concepts
of accounting. Acknowledgement and estimation problems for accounting were the main concern
for these scholars. Normative accounting theories are standard accounting questions asked and
answered whether to consider market adjustments if a corporation is not a Member, the basis to
be used for preparing financial statements, etc (Sitorus, Triyuwono and Kamayanti, 2017). The
organization is responsible for accounting adjustments. Unlike standard accounting theory
dealing with questions like "will," PAT interacts with concerns of "is" kind. Rather than asking
that accounting framework to use, while PAT discussed whether, for instance, accounting data is
valuable to stock-market, that administration of accounting bases currently utilizes and why.
PAT is therefore a significant shift in the framework of accounting science. The similarity of
their views on philosophy and in science is significant link to justify and encourage PAT. They
quoted several philosophies of science-authors as affixing that their views on theory are equal to
and supported by science; and discrediting moral theory to some extent. Since PAT may be of
concern to researchers in accounts for about several decades, this is essential to investigate the
degree to which PAT is effective in emulating natural sciences. Methodological structures of
PAT must also be checked. The identification of systemic accounting preference trends was
another definitive issue for this analysis because the administrators' accounting selection had the
measurement of accounting consistency (Ghanbari, and et.al., 2016). The accounting
methodology chosen will affect the company's capital and also profits. The analysis had
indicated that the value of the contractual cost could be understood by positive accounting
theories. The approach of calculating the costs of contracts will provide the response
to institutional discrepancies to accurately calculate the earnings. Measuring accounting data
using GAAP to produce accrual basis information, and also periodical data analysis, was usual. It

strengthened positive accounting theory by evaluating the period and position-wise for the
corporation to drive overall financial statements.
RECOMMENDATION & CONCLUSION
From the analysis above, this has been concluded that the positive accounting concept for
many years has provided a true and fair presentation of accounts. PAT study had appeared as a
consequence of raising the accounts shortfall. The research paper has offered us historical facts
relating to PAT in this sense. Moreover, the conclusion may be derived from PAT research on
periodic analysis of accounting presentation. The study in this article found that PAT creation
can be defined as normal-science in recent years. Whereas PAT researchers stay dedicated to the
fundamental structure for analysing accounting preferences (i.e. management factors clarify
accounting choices/practices), they have criticized colleagues' practice constructively. PAT
claims that data is not theory's uppermost arbiter. Instead, concept and data have a dynamic
interaction. Anomalous proofs therefore not contribute to the dismissal of a hypothesis
immediately. When a new theory with more idiomatic phrase power arises will a concept be
discarded. Both logical as well as accounting experience is a combined choice among theories
(Alayemi and Abdul-Lateef, 2017).
Nevertheless, this article argues that methodological role of PAT on selection of theory lies
in difficulty. The perspective is that maintaining that a hypothesis is being substituted as a new
theory appears with larger theoretical capacity does not objectively address the question of the
theory option. If no concept with larger explanatory power appears, then at initial level
of theory's creation, the criteria of enhanced explanatory force could not be used. Instead, this
requirement must be introduced at some later phases of new theory's creation (Osifo and Fasua,
2017). The study contributes to accounting literature methodology. Firstly, the progress of PAT
is compared to several traditional scientific accounts. PAT does not suit conveniently all such
accounts. Instead, the approach represents elements across all accounts. Secondly,
methodological lacunae in PAT are defined. There are problems with the standard of concept
in PAT. Lastly, PAT is unable to replicate the progress of the natural sciences, even though it
follows natural science approach. PAT's generality is particularly restricted by institutional
accounting environments as well as period.

REFERENCES
Books and Journals:
Watts, R.L. and Zimmerman, J.L., 1990. Positive accounting theory: a ten-year
perspective. Accounting review, pp.131-156.
Avelé, D., 2014. Positive accounting theory: theoretical and critical perspectives. International
Journal of Critical Accounting, 6(4), pp.396-415.
Shaheen, M.A., 2012. The choice of accounting policy in developing countries: Case of the state
of Kuwait (An empirical investigation of the validity of the positive theory). Available
at SSRN 1983417.
Kaya, İ., 2017. Accounting Choices in Corporate Financial Reporting: A Literature Review of
Positive Accounting Theory. Accounting and Corporate Reporting, p.129.
Santoso, M.R. and br Sebayang, M.M., 2017. A glimpse of positive accounting theory
(PAT). Junior Scientific Researcher, 3(2), pp.70-77.
Isa, M.A., 2014. Determinants of accounting choice of noncurrent assets at IFRS first adoption
among Nigerian firms. Procedia-Social and Behavioral Sciences, 164, pp.378-383.
Setyorini, C.T. and Ishak, Z., 2012. Corporate social and environmental disclosure: A positive
accounting theory view point. International Journal of Business and Social
Science, 3(9).
Sitorus, J.H.E., Triyuwono, I. and Kamayanti, A., 2017. Homo Economicus vis a vis Homo
Pancasilaus: A Fight against Positive Accounting Theory. Pertanika Journal of Social
Science and Humanities, 25, pp.311-320.
Ghanbari, M., and et.al., 2016. PAT (positive accounting theory) and natural
science. International Research Journal of Applied and Basic Sciences, 10(2), pp.177-
182.
Alayemi, S.A. and Abdul-Lateef, M.O., 2017. Accounting Numbers and Management’s
Financial Reporting Incentives: Evidence from Positive Accounting Theory. Noble
International Journal of Economics and Financial Research, 2(2), pp.50-53.
Osifo, I.U. and Fasua, H.K., 2017. Social and Environmental Disclosures and Holistic Growth in
the Positive Accounting Theory (PAT) View. IOSR Journal of Business and
Management (IOSR-JBM), 9(6), pp.1-8.