Accounting Theory: Stakeholder Impact on Financial Reports (HI6025)

This report examines the significance of accounting theories and their relevance to companies, particularly in the context of financial reporting. It compares and interprets two journal articles, revealing the implications of these theories on external stakeholders. The analysis covers the role of accounting theory in developing accounting principles and the measurements of accounting conservatism in research-intensive industries. Key findings highlight the importance of clear accounting theories for accountants in Australian companies, the role of accounting regulators in developing valid accounting principles, and how stakeholders can better understand organizations' financial reports. The report concludes by emphasizing the crucial role of accounting theory in generating financial reports and its impact on external stakeholders.

Accounting Theory and Current Issues
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Executive Summary
This report reflects the importance of accounting theories, how they are relevant to the
companies and what are their importance in financial reports. Two journal articles were chosen
to compare and interpret the above facts. It can be derived from the findings of the two articles
that these theories have different kinds of implications on external stake holders, these findings
have been discussed in details in this report. Thus, from the above findings of the article
significance and relevance of accounting theory can be learnt.
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Table of Contents
Introduction......................................................................................................................................4
a. An explanation of the reasons (at least 3) why our group has selected these two research
articles relating to our topic.............................................................................................................5
b. An explanation of the purpose of the two studies and what research question(s) they set out to
explore about the topic.....................................................................................................................6
c. A discussion about the similarities and differences in the findings of the two studies...............7
d. For each of the two studies, provide two (2) major implications of their research findings that
will be useful to inform each of the three external reporting stakeholders below...........................8
i) Accountants in Australian companies......................................................................................8
ii) Accounting regulators.............................................................................................................8
iii) Stakeholders...........................................................................................................................9
Conclusion.....................................................................................................................................10
References......................................................................................................................................11
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Introduction
Accounting is the most crucial part for any business. However, when it comes to accounts of an
organization, one need to have good knowledge about the various theories related to accounting
(Wang, 2015). The theory of accounting can be defined as a set of framework, methodologies or
an assumption used for the application and study of the principles in financial reporting work.
Information about the economic affairs of an organization about their finances is provided in the
report that will be helpful in decision making for the interested parties. This shows the
importance of accounting theory in the preparation of financial reports for a company. Two very
diverse journals have been used to conduct this study and prepare this report. An evaluation of
the questions raised by the journals and its purpose is given in the report. Three specific research
findings from this article have been taken in consideration, and a detail analysis is been done on
the implications of these outcomes, these three stakeholders reporting externally are –Australian
companies accountants, shareholders and accounting regulators.
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a. An explanation of the reasons (at least 3) why our group has selected these two research
articles relating to our topic
Accounting theory is considered to be of great importance (Gaffikin & Aitken, 2014). This
report has been prepared based on the two journal articles selected, these articles are “The role of
accounting theory in the development of accounting principles” by D Coetsee (2010) and the
second one is “Measurements of Accounting Conservatism in Research Intensive Industries from
Different Financial Reporting Settings”, by Philip Rickard (2016). The theory of accounting can
be justified by these two articles selected. The selection of these two journal article was based on
various factors.
Important factors for selection of the article “The role of accounting theory in the development
of accounting principles” is:
 This article focus on the developments made in accounting theory based on normative
and descriptive approach.
 This article will help to develop more knowledge on the role of accounting theories and
its importance in accounting principles development to prepare financial reports.
 It also give emphasis on the determination of role played by the decision making theory
in accounting to create accounting principles.
In addition, the three important points for the selection of article “Measurements of Accounting
Conservatism in Research Intensive Industries from Different Financial Reporting Settings” is:
 This particular journal helped in the understanding and preparation of assessments those
are to be conducted to assess the research-intensive type of industry for accounting
conservatism.
 This journal helped to give a basic idea of accounting conservatism, which is considered
to be very important theory of accounting.
 This journal also give an idea that with respect to research-intensive industries, financial
reporting is considered less conservative, and this idea have arrived because of the
differences in the approach of Local GAAP’s (Generally Accepted Accounting
Principles) and IFRS (International Financial Reporting Standards).
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b. An explanation of the purpose of the two studies and what research question(s) they set
out to explore about the topic
The purpose for considering the two studies has been stated in this report. The objective of the
journal “The role of accounting theory in the development of accounting principles” has been
given below:
 To find out important developments that has directed an impact on the recent status of
accounting theory.
 To find out the developments responsible for a positive theory in accounting.
 Determining the second outcome of accounting theory that is decision usefulness.
 Determining the development and nature of accounting theory.
 To determine various other developments taking part in imperative and critical research
account research.
The research questions that can be deduced from the journal article for future research in the
field are stated below:
 How the development taken from the articles does helps in the development of the
principles of accounting in accordance with the research medium or in the research gap
and accounts practices that continues to widen?
 Other than the accounting research, what other factors are present, which contributes to
the existence and development of strong principles for accounting that creates an impact
on financial reports?
On the other side, the article written by Philip Rickard is taken into consideration for the
following reason:
 To determine the idea behind conservative context about the intensive-research industry
have which has arrived because of the differences in the approach of Local GAAP’s
(Generally Accepted Accounting Principles) and IFRS (International Financial
Reporting Standards).
 To provide a comparative and quantitative design of research which will feature the
conservatism means of accounting by using financial measurement as a medium, which
will follow a professional structure.
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 To guide the creditors, auditors, investors, corporate managers and regulators those come
under conservatism accounting. The understanding and preparation of assessments those
are to be conducted to assess the research-intensive type of industry for accounting
conservatism for financial reports.
The research questions that can be deduced from the journal article for future research in the
field are stated below:
 Excluding the research-intensive industries, how can the financial reports produced can
be less conservative?
 How will the creditors, auditors, investors, corporate managers and regulators will be
affected by conservatism in accounting?
c. A discussion about the similarities and differences in the findings of the two studies
On studying and analyzing both the journals in this report, it can be seen that both the articles
written by Philip Rickard and D Coetsee, have certain similarities and some dissimilarities or
clash in opinions. Below are given the similarities between the two articles:
 These two journals are based on same topic that is accounting theory. Both the articles
shows how relevant is accounting theory, and they have also stated the various
developments done in these theories.
 These two journal articles are written keeping in mind the influence and effect of
accounting theory on financial reports of an organization. Moreover, they have also
reported how these accounting tools can be used to develop and prepare financial reports
for any kind of industries.
Following table shows the differences between the outcomes and findings of the two journals
selected for this report.
Journal written by D Coetsee Journal written by Philip Rickard
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 This article focuses mainly on
conservatism theory of accounting and its
principles.
 This article focuses on various accounting
theories and relative developments in their
field.
 This journal is useful to people or
stakeholders who are involved in activities
such as lending, consulting services and
financial audits.
 This journal will be useful for researchers
in accounting sector, who focus on
generating and deriving principles of
accounting.
d. For each of the two studies, provide two (2) major implications of their research findings
that will be useful to inform each of the three external reporting stakeholders below
From the report various implications can be drawn out from the two journals “The role of
accounting theory in the development of accounting principles” and “Measurements of
Accounting Conservatism in Research Intensive Industries from Different Financial Reporting
Settings” written by D Coetsee and Philip Rickard respectively. There are both direct and
indirect implications in these two studies with respect to the stakeholders in a company. In the
study, all the three types of stakeholders are taken into consideration and the discussion is given
below.
i) Accountants in Australian companies
 The accountants in the Australian companies can get an idea on the importance of having
clear accounting theories and should understand how to implement them in financial
reports.
 To develop effective and consistent accounting principles based on the various roles of
accounting theories.
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ii) Accounting regulators
 Accounting regulators can determine how to conduct research depending on accounting
theories so that they can be able to develop valid accounting principles. These principles
can be used to further develop financial reports for the organization.
 This study also takes in account the various levels of conservatism existing in terms of
preparing financial reports following accounting theories in different industries like the
intensive-research based industries.
iii) Stakeholders
 From the given journals, stakeholders can get an understanding of the organizations
financial reports were they have invested. It also takes in account how accounting
theories affect their role in an organization.
 They can analyse the financial reports of the company they have invested taking in view
the various accounting laws.
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Conclusion
On studying and analyzing both the journal articles in this report, a very useful data was
obtained. It gave an insight into the various types of accounting theory from various prospective.
It also gives the significance of the theory. From the comparison of the two journals one can
understand and conclude the functions of accounting theory and understand the important role it
plays in the generation of financial reports for any organization. The end part of the study
revolves around the concept of clients and stakeholders involved, and how accounting theories
affect their role in an organization. They get an idea as to how these accounting theories can be
implemented to prepare financial reports for their organization. The article also reflects on the
impact it produce on the external stakeholders.
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References
Rickard, P. K. (2016). Measurements of accounting conservatism in research intensive industries
from different financial reporting settings (Order No. 10118783). Available from Business
Premium Collection. (1805060679). Retrieved from
https://search.proquest.com/docview/1805060679?accountid=30552
Coetsee, D. (2010). The role of accounting theory in the development of accounting
principles. Meditari Accountancy Research, 18(1), 1-16.
doi:http://dx.doi.org/10.1108/10222529201000001
Vollmer, H. (2018). Accounting for tacit coordination: The passing of accounts and the broader
case for accounting theory. Accounting, Organizations and Society.
Downey, D. H., & Bedard, J. C. (2018). Coordination and communication challenges in global
group audits. Auditing: A Journal of Practice and Theory.
Leong, R. (2015). Structuring an undergraduate accounting theory course to enhance the learning
experience of Australian students: Preliminary findings.
Gaffikin, M., & Aitken, M. (Eds.). (2014). The Development of Accounting Theory (RLE
Accounting): Significant Contributors to Accounting Thought in the 20th Century. Routledge.
Glöckner, A. (2016). New development: The protective role of conservatism in public sector
accounting. Public Money & Management, 36(7), 527-530.
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