Accounting Theory and Current Issues: University Finance Report

This report provides a detailed analysis of accounting theory and current issues, focusing on positive and normative accounting theories. It explores how these theories explain and predict real-world financial events and accounting practices. The report compares and contrasts positive and normative accounting theories, highlighting their different approaches to understanding and influencing accounting policies. It examines the application of these theories, including stakeholder theory, legitimacy theory, and institutional theory, and their impact on the accounting profession. The report also discusses how normative accounting theory contributes to the development of accounting practices, including the use of various developmental approaches. The analysis also covers how accounting practices are influenced by normative models, government regulations, and the need for accurate financial reporting. The document concludes by summarizing the advantages and limitations of both positive and normative accounting theories and their role in financial decision-making.

Running head: ACCOUNTING THEORY AND CURRENT ISSUES
Accounting Theory and Current Issues
Name of the Student:
Name of the University:
Author Note:

2ACCOUNTING THEORY AND CURRENT ISSUES
Table of Contents
Introduction......................................................................................................................................3
Positive accounting theory...............................................................................................................3
Discuss with reference to a theory that is considered as a positive accounting theory...................4
Comparing and contrasting positive accounting theory with normative accounting theory...........5
In what ways normative accounting theory contribute to the development of accounting
profession?.......................................................................................................................................8
Conclusion.....................................................................................................................................10
Reference List................................................................................................................................11

3ACCOUNTING THEORY AND CURRENT ISSUES
Introduction
This study deals with explaining the concept of accounting theory and current issues in
present world scenario (Williams 2014). In this assignment, proper emphasis has been given to
address the following issues and provide with justified reasoning to the reader. The current
segment explains positive accounting theory and even highlighted the theory with reference. In
the next segment, there is proper comparison and contrast made between the theories such as
positive accounting theories and normative accounting theories. The next segment explains about
the ways by which normative accounting theory contribute to the development of accounting
profession. The present study properly explains the difference between both the theories of
accounting and when it is applied and how it is applied by most of the business enterprise (Smith
2017).
Positive accounting theory
Positive accounting theory is one of the accounting theories that try to make good
forecasting of real life or world events as well as interpret it into secretarial dealings at the same
time (Bebbington, Unerman and O'Dwyer 2014). Under Positive Accounting theory, business
firms tend to maximize their prospects for survival in order to organize in an effective way.
Positive accounting theory tries in explaining and predicting the real world events in the most
appropriate way. The firm needs to select the accounting policies based on their knowledge.
Positive accounting theory highlights that changing situations or circumstances need manager to
remain flexible in selecting the accounting policies (Mora and Walker 2015). Positive accounting
theory can be attained by altering the accounting policies, managing with the optional accruals,

4ACCOUNTING THEORY AND CURRENT ISSUES
and time of adoption of any new accounting standards. Furthermore, Positive Accounting Theory
can even be attained by changing the real variables such as research & development, repairs &
maintenance as well as advertising. Furthermore, PAT can be achieved by capitalizing operating
expenses in the most appropriate way (Deegan 2016).
Discuss with reference to a theory that is considered as a positive accounting theory
In this question, it is needed to relate Positive accounting theory with system-based
theories such as stakeholder theory, legitimacy theory and institutional theory. Positive
accounting theory is directly related to system-based theories and each of the theory is explained
below with proper justification:
Systems-oriented theories with Positive accounting theory
Stakeholder theory- This theory does not stipulate about what facts need to be revealed other
than indicating the fact about provision of facts that is useful for the sustained operations of the
business unit. Managerial branch involves information relating to financial and social that is used
for controlling over conflicting demands of different groups of stakeholders.
Legitimacy Theory- This theory is based on social contract between the society as well as
business enterprise as a whole. Business enterprise seeks to understand the fact about how the
activities operate within the bounds as well as norms of society.
Institutional theory- This theory must overlap with legitimacy theory as well as stakeholder
theory.

5ACCOUNTING THEORY AND CURRENT ISSUES
There are theories that explain about why specific accounting theories are made (Positive
Accounting Theory, Stakeholder theory and legitimacy theory). In addition, it is how business
enterprise forms exist (institutional theory). Furthermore, there are several theories that explain
about particular regulation such as accounting regulations are developed. Accounting disclosures
as well as specific organizational forms are seen as a way for managing relations with specific
groups outside the organization or business enterprise.
Comparing and contrasting positive accounting theory with normative accounting theory
Positive Accounting Theory Normative Accounting Theory
Examines real life occurrences as well as find ways
to understand how actual business firm address the
accounting treatment for those transactions (Mora
and Walker 2015)
Takes fundamental different approach
In this theory, accounting policy makers plans for
what need to be done based on the theoretical
principle (Bebbington, Unerman and O'Dwyer
2014).
Looks at actual world transactions and events
Examines further on how business firms are
accounting for those events as well as highlight the
economic consequences of those accounting
decisions (Deegan 2014).
The theory is then predicted on how business firms
will account for transactions as well as events in
the upcoming financial year (Mora and Walker
2015).
More like a deductive process as compared to
positive accounting theory.
Starts with the theory as then deduced to specific
policies (Deegan 2013).
Positive accounting theory and its accounting Normative accounting theory and its accounting

6ACCOUNTING THEORY AND CURRENT ISSUES
practices are quite objective by nature as well as
based on fact (Bebbington, Unerman and
O'Dwyer 2014).
Descriptions are given for future enhancement for
making different logical analysis and predictions of
most suitable or acceptable accounting practices or
standards used by different business enterprise or
accounting firms. This accounting theory actually
gives optional practices for both firms who decide
whether to use this approach or not in their
accounting operations.
practices are quite subjective by nature as well as
explains about what the economic future will be for
any company or investor (Mora and Walker 2015)
Focus mainly on analyzing the statistics as well as
data that are present after deriving at conclusions
based on those figures (Crawford and Lepine
2013)
This normative accounting practice is in the form
of a value judgment that helps in introducing
subjective morality into accounting (Bonin 2013).
Predictable model where the validity of actions are
kept independent of the acceptance of any of the
goal structure.
Justifying some accounting practices (Bebbington,
Unerman and O'Dwyer 2014)
Need commitment to goals and it is the
responsibility of the policy makers to undertake
further judgment as a whole.
Useful in determining the suitability of some of the
accounting practices that follows or use normative
theories in their business places (Mora and Walker
2015).
For instance,
If corporate growth allows any business enterprise
For instance,
If any business tends to increase dividend payment

7ACCOUNTING THEORY AND CURRENT ISSUES
for increasing shareholder dividends over past
dividend payments, then positive accounting theory
would conclude that corporate growth actually
causes an increase in stockholder dividends.
In addition, most of the bookkeeping as well as
data collection take into consideration accounting
related theory and this is positive economic theory
(Mora and Walker 2015).
by using funds for improving corporate
sustainability measures, then normative accounting
statement would highlight the fact on how
normative accounting deals with future events
rather than previous data and this come under the
domain of positive accounting practices
(Bebbington, Unerman and O'Dwyer 2014).
Positive accounting theory can be best used for
explaining past financial events and causes of
business or any of the current financial standing of
an individual (Bertomeu and Cheynel 2013).
It further need to determine the reason behind why
operating at a net loss of a business need positive
accounting practices for comparing actual revenues
with actual expenses for a given course of time
period.
Accounting practices used in this theory help in
constructing documents like cash flow statements
as well as balance sheets.
Normative accounting theory can be best used for
explaining the set future economic policy based on
theory
The mission statement of business enterprise or any
of the marketing strategies are properly mentioned
in the business plans and normative statements. In
this normative statement, it properly reflect about
how business ideals to be or accomplish to be in the
upcoming financial year (Mora and Walker 2015).
Working together
Appropriate financial planning for any of the trade enterprise or individual need the use of both positive
accounting theory and normative accounting practices. Based on large scale economy, it shows that
financial policies make use of normative financial statements but these statements are based upon
financial realities as found from the positive accounting practice. In addition, the factual-based practices

8ACCOUNTING THEORY AND CURRENT ISSUES
of positive accounting help in providing basic for business enterprise for engaging in normative
accounting and that gives more realistic view on how company operates and still earns profits in the
upcoming financial years (Bebbington, Unerman and O'Dwyer 2014).
In what ways normative accounting theory add to the growth of accounting profession?
At the time of examining the theories of accounting, it is found out that these theories are
developed long before and this underpins the conceptual framework for accounting. The
normative theory contributes to the development of accounting profession. This theory was
developed to focus on an estimation rather than just observation (Beattie 2014). The normative
approach to the expansion of accounting theory actually explain the positivistic nature of normal
accounting research where decisions are taken using the theory of accounting and the role of
interpretive and serious research. There are various developmental approaches that prove to be
beneficial to accounting and leads to a diversity of research approaches and it collectively bring
improvements in the status of accounting research (Bebbington, Unerman and O'Dwyer 2014).
Therefore, the role of these development aims at fulfilling the needs as well as creating
appropriate accounting policies as and when needed
Beattie (2014) had brought accounting research for overcoming its normative framework
for a technical regulation for developing research work as accounting profession. The authors
were of the opinion that for a scientific approach, it is needed to study the accounting theories
that emerges from a normative examination to an axis of technical research. The approaches had
been designed as it claimed a perspective that further highlights as well as explain about
accounting policies as it demolishes with previous theories. Based on the evolution of financial

9ACCOUNTING THEORY AND CURRENT ISSUES
accounting, it is understood that normative theory speculates about the dimension selection in
most of the cases (Ball 2013).
Altogether, a new horizon was explained in scientific reorientation as well as the
framework used for normative prepositions (Mora and Walker 2015). In addition, the scientific
orientation explain clearly about methodological foundation for the accounting study and this is
treated as values systems and further explain the relationship between the researcher and the
subject as a whole. It is important to focus on the research study where the accounting practices
explain about the accounting products development as it had emerged like an observed
legalization procedure as it is hypothetical to supposed realities (Aryee et al. 2015).
There are several strategies that main focus upon certain interest groups as well as
engages in surveying their perceptions and attitudes on matters relating to disclosures. The
strategy need to be determined to which specific items of significant information and facts are
disclosed especially in the corporate annual reports by using normative index of disclosure based
on assessment (Mora and Walker 2015). Normative models or goals advocates in policy
discussion based on conviction and preferences rather than using inductive system of the existing
system. In addition, it is noted that normative events theory had been used for increasing the
forecasting accuracy of accounting reports and this was done by emphasizing on relevant
attributes of events as it is crucial to the users. Normative theory had been used and attempts to
prescribe what data need to be communicated as well as how it is presented in given form
(Bebbington, Unerman and O'Dwyer 2014).
It is important to understand the fact that government regulations relates to accounting
and reporting where it act as a major force for creating of demand for several normative

10ACCOUNTING THEORY AND CURRENT ISSUES
accounting theories that had been employed for employing public interest arguments. The theory
further proposes to demonstrate findings from certain accounting procedures as it help in better
decision-making process for several investors.
Conclusion
At the end of the study, it is concluded that both positive and normative accounting
theory has its own advantages and limitations. The above analysis properly explains about
positive accounting theory on how it helps in predicting the activities of what is happening in the
world. This particular theory had been derived from the concept of inductive theory or method.
The methods initially begin with given assumptions that describe the accounting practice in
various business firms. On the other hand, normative theory fails to predict about the practices
that are acceptable in any form. This theory explains about the practice or standards that are
readily acceptable. The theory had been derived from deductive method or approach that does
not consider other practices that is all about coming up with new practices or ideas at the same
time.

11ACCOUNTING THEORY AND CURRENT ISSUES
Reference List
Aryee, S., Walumbwa, F.O., Mondejar, R. and Chu, C.W., 2015. Accounting for the influence of
overall justice on job performance: Integrating self‐determination and social exchange
theories. Journal of Management Studies, 52(2), pp.231-252.
Ball, R., 2013. Accounting informs investors and earnings management is rife: Two questionable
beliefs. Accounting Horizons, 27(4), pp.847-853.
Beattie, V., 2014. Accounting narratives and the narrative turn in accounting research: Issues,
theory, methodology, methods and a research framework. The British Accounting Review, 46(2),
pp.111-134.
Bebbington, J., Unerman, J. and O'Dwyer, B. eds., 2014. Sustainability accounting and
accountability. Routledge.
Bertomeu, J. and Cheynel, E., 2013. Toward a positive theory of disclosure regulation: In search
of institutional foundations. The Accounting Review, 88(3), pp.789-824
Bonin, H., 2013. Generational accounting: theory and application. Springer Science & Business
Media.
Crawford, E.R. and Lepine, J.A., 2013. A configural theory of team processes: Accounting for
the structure of taskwork and teamwork. Academy of Management Review, 38(1), pp.32-48.
Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.