Contemporary Issues in Accounting: Positive vs Normative Approaches

This discussion post explores the ongoing debate between positive and normative accounting approaches. The author analyzes the core differences, highlighting how normative accounting relies on subjective opinions, assumptions, and general knowledge, while positive accounting emphasizes facts and figures. The post uses examples to illustrate these differences, such as the role of government in healthcare. It concludes by advocating for the adoption of a positive accounting approach to improve decision-making by grounding policies in verifiable data rather than opinions. The assignment is based on the analysis of an article and contributes to a discussion forum as part of a course requirement. The student provides a concise summary of the article and presents their opinion on the topic.

Contemporary Issues in Accounting 1
CONTEMPORARY ISSUES IN ACCOUNTING
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Amy Fontinelle, What is the difference between positive and normative economics?
Investopedia-27 Mar 2017

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Contemporary Issues in Accounting
The Difference Between Positive and Normative Economics
In contemporary accounting practice, there has been a heated debate on whether to adopt
positive or normative accounting practices during the preparation of financial statements. This
debate has created differences in the way certain accounting transactions are treated. For
instance, the normative theory is based on the principle that accountants or preparers of
accounting records should be subjective and value-based. Proponents for Positive accounting
theory, on the other hand, believe that accountants and preparers of financial statements should
be objective and facts based (Neto et al., 2010). The distinction between positive and normative
accounting is therefore far wide. Financial statements prepared under the normative approach
have been accused of being opinion-based and therefore cannot be attested to. This has left the
positive accounting approach being viewed as a better option as the statements prepared under
such approach are perceived to be value-based, hold facts and can be tested to prove or disprove
their accuracy.
The author of this article uses an example of the role of the government in providing
healthcare services to describe the difference between the positive and the normative accounting
approaches. The author acknowledges that whereas it is the role of the government to provide
healthcare to all its citizens, there is no way to prove if indeed the government is providing
healthcare since the statement ‘‘should have been used (FONTINELLE, 2018). Based on this
context, we can, therefore, say that the government's role in safeguarding the citizen's lives is
based on opinions and not facts. Positive norms should be used to bring more facts such as ‘‘the
government pays a certain amount for healthcare’’ on behalf of the citizens.

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In another context, a statement like ‘‘the government provided healthcare to the citizens
in the financial year 2017-2018 a situation which increased public expenditure'', is more positive
as it can be proved or disapproved by looking at the figures of the funds that were spent on
healthcare. The two situations drive us into an economic situation where there have been
disagreements over the way public finance policies have been structured (Cummings and Chand,
2008). Some economists have accused the normative approach of being opinionated as opposed
to base on facts. Proponents for positive approach have been championing for a situation where
there are better decision-making policies being structured to see that decision are made based on
figures and facts.
Conclusion
To sum up, I would like to concur with the prepositions made by the author regarding the
differences between normative and positive accounting/ economics approaches. As discussed
above, the normative accounting approach tends to make use of opinions, assumptions and
general knowledge to arrive at conclusions as opposed to the positive approach which is based
on facts and figures. In my opinion, therefore, I would propose the adoption of the positive
accounting approach as opposed to the normative approach. If adopted, the positive
accounting/economic approach can lead to better decision making as policies will be made based
on facts rather than opinions.

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References
Cummings, L. and Chand, P. (2008). Financial accounting theory and practice. North Ryde, N.S.W.:
McGraw-Hill Australia.
FONTINELLE, A. (2018). What is the difference between positive and normative economics?. [online]
Investopedia. Available at: https://www.investopedia.com/ask/answers/12/difference-between-
positive-normative-economics.asp [Accessed 9 Dec. 2018].
Neto, O., Cardoso, R., Oyadomari, J. and Riccio, E. (2010). The use of positive and normative
approaches in Brazil and US accounting research: a comparative analysis based on the papers
published in The Accounting Review and the Revista de Contabilidade & Financas
(Accounting & Finance Journal) – 1989 to 2008. International Journal of Economics
and Accounting, 1(4), p.316.