Accounting Theory: Importance of Concepts in Financial Reporting

This report delves into the core of accounting theory, emphasizing the centrality of accounting concepts in the construction of financial information. It highlights the evolution of accounting practices, from traditional approaches to modern trends, and underscores the importance of accounting concepts and theories in organizing financial data for effective management and control. The report discusses the double-entry bookkeeping system and the significance of accounting information for both internal and external stakeholders. It references key perspectives and arguments from various academic sources. It explores the need for reliable and comparable financial data, the role of accounting in business performance analysis, and the impact of various software and accounting standards, such as GAAP. Furthermore, the report discusses the concept of business entity, the social and ethical dimensions of accounting, and the importance of conceptual frameworks, correspondence theory and ethical considerations. The report also explores the role of accounting assumptions, and changes in accounting policies and methodologies. The report concludes by emphasizing the need for a comprehensive understanding of accounting concepts for effective financial reporting and analysis.

ACCOUNTING THEORY

Table of Contents
TOPIC: 'ACCOUNTING CONCEPTS ARE CENTRAL TO THE CONSTRUCTION OF
ACCOUNTING INFORMATION'.................................................................................................1
BIBLIOGRAPHY............................................................................................................................6

TOPIC: 'ACCOUNTING CONCEPTS ARE CENTRAL TO THE
CONSTRUCTION OF ACCOUNTING INFORMATION'
Accounting theory is recognised as a combination of accounting assumptions, theories
and concepts related to financial reporting and accounting principles. Traditional approaches and
assumptions was being used by organisations in terms of maintaining the records related to
accounting and finance. It is important for an entity to utilise the accounting concepts and
theories used to form the financial information and aspects for better control and management.
The accounting theory is a concept of framing the these assumptions and aspects in a organised
format to assist the organisations for better control. There is a modern historical economics and
the social aspects are reformed to adjust the current trends and assumptions in accounting and
financial process.
Accounting contains the exercises like recognizing, ordering, outlining and determining
the accounting information and translating the outcomes thereof. It is a process of recording the
transactions and events on day to day basis. It alludes to strategy for double entry book keeping
system. The concept of accounting indicates towards the fluctuations and approaches for better
understanding and cooperation of accounting information. It suggests the business exchanges
information and its examination in accounting design for making the plans and objectives in
viable manner.
As per perspective of McNichols, and Stubben, (2015) Accounting ideas are integral to
the development of financial and non financial data. it is completely founded on its ideas,
traditions and guideline, which give a lawful consideration to organization to way towards
effective management and engagement process. For making the accounting information huge to
its inside and outside customers, it is basic that such information is strong and furthermore
comparable. The resemblance of information is required both to make conceal - firm
relationships, i.e. to see how a firm has executed when out from interchange firms, and
notwithstanding make between period connection, i.e. how it has executed when appeared
differently in relation to the prior years. Beatty and Liao, (2014) argued that business execution
and to dissect and learn the monetary data thus, the ascertainment of benefit of the association
can be possible. Not just this after arrangement of accountingdata requires its answering to its
inside and outside clients. This examination includes with the depiction about the
accountingideas and traditions with suitable precedents.
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McNichols and Stubben ,(2015, 20(1). pp.110-140.) argued that main objective is to
give the deliberate system to record and dissect the Accounting information, or can give in a
fitting configuration so examination of present information with the past recorded information in
this way, that the gainfulness and execution can be find out by appropriate assessment and
assessment. There are type of information remain required for constructing the accounting
information in a specific and predetermined format. It is important for managing the accounting
information and concepts for better understanding and elaboration. Theory Base of Accounting
mainly defines the concepts related to theories resulted to organisational performance and
management. Financial information can only be executed effectively when the formation remain
active in various accounting forms. This calls for working up a suitable theory base of
accounting. The fluctuations also helps in correlating the concepts and determination of
accounting concepts for better management and control.
Taylor and Schroeder, (2015, 80(4), pp.503-518). argued that the polices and concepts
are formed according to scenarios and changes. The variations not only indicates towards the
objectivity and fallibility. Various debates and arguments happened regarding the accounting
theories and concepts to manage and operate the accounting structure as per organisational
context Collier (2015, 20(1). pp. 110-140.). The term of accounting theory is formed to highlight
the accounting concepts and defining for determining the accounting concepts in various
entities. Accounting theories and assumptions based upon various principles are formed on the
basis of particular scenario for creating additional form of approaches and concepts. Otley,
(2016, 31 pp. 45-62) debate upon the contingency accounting theory that mainly associated with
creating the challenge sand management approaches for determining the theories and
characteristics of various assumptions. The explanation mainly depends upon the theories and
concepts applicable for better forecasting and planning process.
Accounting is basically formed on the basis of social morals and ethics so that it would
be able to beneficial and understandable for society and stakeholders of organisation. It is argued
by James and Prout, (2015, pp. 6-28) be adequate and sensible for society so that informations
can be executed effectively and adequately. Various type of accounting problems were
considered while preparing the financial accounts and accounting information in proper manner.
The accounting procedure and policies also helps in conducting the accounting approaches and
variation in more specific and significant way. It is a point of argument among the
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professionalise that which amount should be consider in terms of fixed and tangible assets while
preparing the balance sheet. The fluctuations indicates towards managing the accounting
information with proper analytical and fractional process. These changes are executed with
proper analysis and measurement by creating the viability of accounting concepts.
However, diverse type of accounting software are being used by organisations such as
SAP, ERP, Risk management etc. All these software and tools are made according to accounting
standards of published by GAAP. The corporate report 1957 revels the accounting in formation
contingent to various fractional and nominal data for completing the changes and requirements.
To keep away from the issues and possibilities different sort of accountingideas are required to
broke down with in hierarchical setting. Business element ideas expresses that the business
element is discrete lawful element unmistakable from its individuals, also, particular from its
individuals implies the joining and leaving of its individuals can't influence the presence of the
element and lawful element implies the organization can make operational exchanges in its very
own name and can sue the authoritative procedure.
As per stated by Nitzl, (2016, 37. pp.19-35) ideas arranged and guarantees the best
possible stockpiling of information supportive in making the narrative confirmations in court
sometimes. Tax collection experts (both pay expense and deals impose) are probably going to
trust the information relates in the arrangement of accounting books, whenever kept up as
indicated by accounting ideas. Accountancy ideas guarantees the best possible planning and
introduction of fiscal summaries arranged based on uniform practices, with empower a business
to contrast consequences of one period and another period. Essential elements which are required
to consider to clarify the accounting assumptions and management approaches for better
understanding and utilisation process. For example, in the midst of the costs humiliation that rose
in the UK in 2009 as for cases for reimbursement by government authorities, one administrator
responded to criticism by communicating that she had done nothing unlawful. This genuinely
neglected the principle issue, as the general populace may at present observe true costs ensures
as wrong, and thusly exploitative.
The social concept of accounting is to consider which is considering the challenges and
requirements of current accounting trends with in organisational context. In various forms the
accounting procedures executes and coherent the process in various functional changes and
requirements. Not only the accounting assumptions and concepts needs to be introduced while
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considering society interest but also required to add some practical aspects and variations with in
organisational context.
Therefore, most of the writers considered accounting as a process, tool or system whereas
some of them assumes it a language to execute the accounting information in a contingent
manner. As communicated by Sterling (2014, pp. 233-282). Conceptual framework is the main
part of the that remain essential for considering the changes and requirements of business in
summarised manner. For an extraordinary piece of the chronicled setting of hypothesis it has
been extensively held that judiciousness incorporated a specific system, and could achieve data
unquestionable from that accomplished by the remarkable sciences. The correspondence theory
is often traced back to Aristotle's well known definition of truth. It view that truth is
correspondence to or with a fact. But the label is usually applied much more wider to any view
explicitly embracing the idea which truth consist in relation which is that truth is relational
property includes a characteristic relation to some portion of reality.
The befit of this theory is that it is associated with metaphysical realism. Its traditional
competitors, pragmatist, anti realism or relativism. As in past year these traditional competitors
have been substitute by deflationary theories of truth and to lesser extent. Apart from this there
are other theories like truth maker theory which is liberal version of correspondence theory. And
other one is pluralism. It incorporates a correspondence account as one, ingredient of its overall
account of truth.As needs be, power and epistemology have regularly together had a position of
"first rationale," laying the basic purpose behind the cognizance of this present reality and the
help of data claims. Ethics is stressed over what society considers to be right or misguided. It
along these lines relates to rules of direct. At first this may appear to cover with one inspiration
driving law, in that law attempts to address direct of which society objects. In any case, moral
norms may be grasped that cripple lead that is undesirable anyway legal. Naturalism is an
approach to manage philosophical issues that deciphers them as tractable through the procedures
for the exploratory sciences or if nothing else, without an especially from the prior endeavour of
theorizing.
As communicated by Staubus, (2013) in the past region, the refinement between
accounting methodologies and estimation methodology is imperative. Regardless, consistency
isn't an end in itself and it doesn't deter the introduction of upgraded accounting practices that
result in improved information for customers. Estimation frameworks are the systems grasped by
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a component to arrive at the assessed cash related totals (contrasting with the estimation bases
picked) for segments of the spending rubdowns. FRS 18 says that a distinction in accounting
approach has happened where there has been a change to any of the sections of the definition.
In any case FRS 18 illuminates that cost/benefits thoughts don't independently legitimize
the decision of an accounting methodology that is conflicting with that set down in accounting
measures (Bryer, 24(4-5). pp.273-318). FRS 18 anticipates that components will review their
accounting systems constantly and transform them where fitting. Visit changes to accounting
techniques are not appealing in light of the way that they make relationship more troublesome.
There is a compression and the management approaches are used for better execution and
appropriateness process in managing the sections and approaches for various form. It is executed
that types of information mainly associated with defining the process with creating the
accounting engagement process and valuation with creative executions. Keeping an eye on and
changing accounting approaches However, any decision to change an explicit accounting course
of action must be taken in the light of the key inquiry of proportionality that was discussed
previously.
The following area endeavours to limit the exploration methods of insight to the ones
which are connected in accounting research by embracing orders of investigation into various
ideal models (Bryer, 2012, 23(7-8). pp.511-555). Concentrates that have explored eminent
Accounting Journals to see the developing headings for future research in accounting have
watched about total non-attendance of concentrates that have done accounting research utilizing
traditional methodologies, for example, field research and history which are vital in tending to
inquiries in the field of accounting. The sections also remain essential for calculating the
differences and the requirements with creative extension and accounting concepts. The
accounting theories are also remain essential for calculating the concept in various forms. The
third and fourth segments examinations the development of these ideal models in two wide
territories of accounting to be specific administration accounting and to financial data.
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BIBLIOGRAPHY
Bryer, R., 2012. Americanism and financial accounting theory–Part 1: Was America born
capitalist?. Critical perspectives on Accounting. 23(7-8). pp.511-555.
Bryer, R., 2013. Americanism and financial accounting theory–Part 2: The ‘modern business
enterprise’, America's transition to capitalism, and the genesis of management
accounting. Critical Perspectives on Accounting. 24(4-5). pp.273-318.
Bryer, R., 2013. Americanism and financial accounting theory–Part 3: Adam Smith, the rise and
fall of socialism, and Irving Fisher's theory of accounting. Critical Perspectives on
Accounting. 24(7-8). pp.572-615.
Bublitz, B., Philipich, K. and Blatz, R., 2015. An example of the use of research methods and
findings as an experiential learning exercise in an accounting theory course. Journal of
Instructional Pedagogies. 16.
Collier, P. M., 2015. Accounting for managers: Interpreting accounting information for decision
making. John Wiley & Sons.
James, A. and Prout, A., 2015. A new paradigm for the sociology of childhood?: Provenance,
promise and problems. In Constructing and reconstructing childhood (pp. 6-28).
Routledge.
McNichols, M. F. and Stubben, S. R., 2015. The effect of target-firm accounting quality on
valuation in acquisitions. Review of Accounting Studies. 20(1). pp.110-140.
Nitzl, C., 2016. The use of partial least squares structural equation modelling (PLS-SEM) in
management accounting research: Directions for future theory development. Journal of
Accounting Literature. 37. pp.19-35.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–
2014. Management accounting research. 31. pp.45-62.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–2014.
Management accounting research. 31. pp.45-62.
Staubus, G. J., 2013. The decision usefulness theory of accounting: A limited history. Routledge.
Sterling, R. R., 2014. The theory of the measurement of enterprise income. In The Development
of Accounting Theory (RLE Accounting) (pp. 233-282). Routledge.
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