University Report: Analysis of Accounting Theory in Modern Economy

This report presents an analysis of accounting theory, focusing on its implications in the modern economy, drawing from six articles. The report begins by examining Gramsci's theory and its application in understanding China's transition from 1949 to 1957, highlighting the role of ideology diffusion in shaping accounting practices. It then explores the development of accounting as a scientific discipline in Turkey, considering the influence of legal, economic, and political factors. The report also delves into the limitations of accounting conservatism research in Europe, particularly the application of Positive Accounting Theory in French companies and the adoption of IFRS. Furthermore, it discusses the relevance of Positive Accounting Theory in Indonesian corporate social and environmental disclosures and provides a broad discussion related to the usage of Positive Accounting Theory in China. The analysis covers various aspects of accounting, including financial reporting, corporate social responsibility, and the impact of different accounting standards and practices on financial outcomes.

Running head: ANALYSIS OF ACCOUNTING THEORY
ANALYSIS OF ACCOUNTING THEORY
Name of Student
Name of University
Author’s Note

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EXECUTIVE SUMMARY
This research report confers the implications of the accounting theory in the modern economy.
This report talks about six articles and accounting theories that are adopted in different articles.
The relations between the geopolitical factor and the accounting theories are also identified. All
the articles are used to analyse the implications and effectiveness of the accounting theory. The
importance of accounting theories is also discussed in this report.

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Table of Contents
INTRODUCTION...........................................................................................................................3
IDELOGY DIFFUSION AND THE ROLE OF ACCOUNTING IN CHINAºS TRANSITION
FROM 1949 TO 1957:.....................................................................................................................3
DEVELOPMENT OF ACCOUNTING AS A SCIRNTIFIC DISCIPLINE TURKEY.................5
LIMITATIONS OF ACCOUNTING CONSERVATISM RESEARCH IN EUROPE..................5
CORPORATE SOCIAL ENVIRONMENTAL DISCLOSURE FROM THE VIEW POINT OF
POSTIVE ACCOUNTING THEORY............................................................................................7
ACCOUNTING RESEARCH IN CHINA......................................................................................7
TRADITIONS OF THE ACCOUNTING RESEARCH.................................................................9
CONCLUSION..............................................................................................................................11
REFERENCE................................................................................................................................12

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INTRODUCTION
This report states about different accounting theory and its implications in different
economy. The report also discusses the connection of the accounting theory in different
problems. This report deals with six articles and the consequences of the Positive Accounting
Theory in the article.
IDELOGY DIFFUSION AND THE ROLE OF ACCOUNTING IN CHINA’S
TRANSITION FROM 1949 TO 1957:
In this article, the authors discuss the Gramsci's theory. This theory assists accounting to
accommodate the power and ideology, which helps to shape the accounting practices. The
researcher has used conception of Gramsci of hegemony that is used to legitimating in both
organisational and social level. In this report, authors also states that Gramsci's theory assists the
accounting role in the reflection of ideologies and in constituting. Gramsci's theory also
considers the change in the parts of accounting in the hegemonic climates. The researcher had
conducted empirical research. The researcher has regarded as the period from 1949 to 1957. The
researcher had also considered the two major ideological movements. New Democracy and
Leaning to One Side are two types of ideological movements. The researcher had also stated
about the diffusion of the political ideologies that are used to identify the accounting practices
that are shifted due to the change in the ideology of China. During the transitional period of
China, the New Democracy concept was established. The year was 1940. The New democracy
system was also stated as a democratic dictatorship. The system rested on the border of the social
base. This also led to gain support for the new system. After the implementation of the New

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Democracy, the rigid system of China started moving towards the capitalist economy. Thus, the
New Democracy practice became the part of the system and started affecting the economy of
China. As per the authors, the economy of China was divided into four sectors. The four
industries are state-run sector, co-operative economy, private sector and state-capitalist sector.
After the implementation of New Democracy in 1950, the financial system of China
tends to change. In that period, the accounting policies of China also started to change. The
change in the financial and accounting system of China led to creating the dissatisfied
environment in the country. The new accounting policies need to counter the traditional ideas
that are used to diffuse the political ideology, which states the working class. In this research
paper, the authors noted that modern accounting theory has the ability to encounter both
socialists and capitalists’ economic systems. The only difference between the socialists’
economy and the capitalists’ economy is that when profit generated from the business shared
between the mass then it can be termed as socialist economy. When the profit raised from the
business kept by an individual then it is known as capitalist economy. The author suggested
changing the traditional accounting system to a modern accounting system. The conventional
accounting formula, which shows the relationship between the Liability and Equity changes to
Application of Funds equals to Sources of Funds. As per modern accounting system, the
application of funds is considered as the funds that are collected from the productive processes.
In later stage, Industry Accounting System was replaced by New Accounting System.
This leads to the rise in Gramsci's Theory. On the other hand, the New Democracy has also
restored the Leaning to One side movement in China.

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DEVELOPMENT OF ACCOUNTING AS A SCIRNTIFIC DISCIPLINE TURKEY
In this research paper, the researcher tried to develop an accounting theory, which
becomes suitable for the discipline of science in Turkey. The accounting system of Turkey are
mainly based on the country's law, zakat and eminent. The accounting method of Turkey mainly
follows the stairs accounting method. Stairs Accounting Method stated one of the oldest models
in the field of accounting (Setyorini and Ishak 2014). In this accounting theory, the accountant
needs to enter the entries and sums from top to bottom. The accounting method and policies are
being developed depending on the political system, legal factors, economic system, educational
system, occupation activity and even taxing. The accounting method developed in three periods.
The first development came into being amid 1923-1950, the second change came amid 1950-
1985, and the third change came after 1985. The researcher also identified that the difference in
the accounting policies of Turkey were mainly improvised from the countries like USA,
Germany, UK and France. The reason for improvised accounting policies is due to the ties of
Turkey with the western nations. Another reason, which can be gauged, is that during 1980,
Turkey changed its economic culture and became an open economy. To maintain the incoming
of foreign companies, Turkey improvised its accounting policies (Chiang and Braender 2014).
Thus, by this time, the accounting policies and standards of the country started taking to shape
based on international developments.
LIMITATIONS OF ACCOUNTING CONSERVATISM RESEARCH IN EUROPE
In this research paper, the researcher studied the adoption of Internal Financial Reporting
Standard within the perspective of the accounting standards of the respective country. The
researcher discusses the relevance of Positive Accounting Theory in French companies. Positive
Accounting Theory is the theory that helps to reconcile the consequences of the economy with

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efficient securities market theories. Positive accounting theory assists in determining the choices
adopted by the company are using the accounting policies. There are a total of three hypotheses
of the accounting theory. The three interpretations of accounting theories are a bonus plan
hypothesis, debt covenant hypothesis and political cost hypothesis. The company’s management
and the auditor of the company can determine the accounting standard using the above
mentioned hypothesis (Chiang and Braender 2014). These also support the auditor of the
company to examine the standard that is selected. In this way, the auditor can interpret the
fraudulency and any kind of unethical behaviour that are adopted by the company’s management
while preparing the annual report of the company. Positive Accounting Theory also helps to
manipulate the net income during the change of the accounting policies. International Financial
Reporting Standard enables the accounting standard to change and value its assets and liabilities
in historical cost and other parts in the fair value method. In this research paper, the researcher
discusses the first adoption of the fair value in its accounting system. The researcher also
explains the limitation Positive Accounting Theory for understanding the conservatism. The
researcher stated that the maximum companies are using historical cost for the valuation of assets
and liabilities (Chiang and Braender 2014). As per the analysis, it can be stated that even after
the introduction of IFRS standard, the traditional conservatism remained in the system. Thus,
Positive Accounting Theory was unable to provide the ability to understand the durability of the
historical cost in the system. As per the analysis of the French companies, it can be determined
that despite the considerable advancement in the IASB, the French companies still able to
maintain the traditional accounting policies. This was considered as the inability of Positive
Accounting Theory (Wseas.us. 2019). It can also be seen that Positive Accounting Theory is not
able to explain the accounting choice made by the French companies during the adoption of

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IFRS standard. In this research report, the researcher has shown the inability of the Positive
Accounting Theory in French companies. The companies around the world which has adopted
the International Financial Reporting Standard tends to follow the standard, but all companies
use the historical cost in the valuation of the assets and liabilities.
CORPORATE SOCIAL ENVIRONMENTAL DISCLOSURE FROM THE VIEW POINT
OF POSTIVE ACCOUNTING THEORY
This research paper discusses the relevance of the Positive Accounting Theory in
Indonesian corporate social, environmental disclosures. The article also talks about the
significance of the three hypotheses incorporates social environment. The researcher has taken
1857 companies for analysis purposes. The researcher has also used Clarson Environmental
Index and Sutantoputra Social Index (Sürmen and Daştan 2014). The researcher conducts the
regression analysis. As per the findings of the research, it can be identified that the corporate
social responsibility and environment in Indonesia are related with the Return on Assets, the size
of the firm and earning of the firm. So, it can be identified that the Positive Accounting Theory’s
bonus plan and political cost hypothesis are relevant.
ACCOUNTING RESEARCH IN CHINA
This article had provided broad discussions related to the usage of Positive Accounting
Theory. Here, the concepts are highly focused on the variety of themes related to this accounting
concept. This idea deals with the construction of the accrual accounting process. Further, the
process deals with the implication of the company balance sheet and assets and liabilities as a
whole. The comprehensive earning is an approach which with Positive Accounting Theory.

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Furthermore, the whole idea is highly associated with the growth of the firm that based
on the firm's operational activity and misleading information. The firms accounting conservatism
is a problem which is currently all the companies are dealing with (Ms. Kavita and Dr. Pankaj
2018). It helps to integrate the positive accounting research concept deeply and perceive value
addition relating to this theory. Moreover, the generally accepted accounting principles or GAAP
principles are related to the overall value addition towards the accrual concerns. Therefore, this
concept follows a list of process that are highly associated with the aspect of the Positive
Accounting Theory (Glover 2014). These are as follows-
The identification of the company cash flow statements combined with the earnings can
sometimes create specific issues. Generally, it does not identify the non- cash expenditures such
as the company depreciation related to the total accrued income of the business.
The quality of the earnings usually depends upon the balance sheet. Similarly, the
information is not conceptualised in terms of extent where the overall operating costs or assets
are developed in terms of the market values.
Moreover, the GAAP principles reduce the overall attempts to measure the operating
profits or activities. Hence such competitive growth of sales could be facilitating the prospects.
The sales target is potentially useful towards the growth of the company activities. Therefore,
positive accounting concepts are related to the GAAP principles hypothesis. Hence the quality of
earnings is highly affected to the company’s operating businesses. Thus, in the practical sense, it
can be said that the growth in earnings had immensely helped in the net worth of the company
(Alayemi 2015.).

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Hence from this article, it is seen that the accounting research in countries like China had
provided below outcomes. These are as follows-
The local government's earnings are provided by descriptive fiscal statistics. It is seen
that the minimum and maximum earnings are respectively 4.91 per cent and 94.70 per cent in the
first segment and 12.41percent is for the second segment. Hence it is clearly stated that there is a
considerable deficit among these two areas. This difference can create a lack in accounting
concept. Therefore, a positive accounting theory can fulfil this area. Thus, the vast accounting
research in China is in need of having a positive accounting research concept (Sitorus et
al.,2017).
TRADITIONS OF THE ACCOUNTING RESEARCH
This article provides a compelling rationale towards the tendency that the human being
and the researchers are not different people. Instead, they have a common goal. They share
similar research in the vast areas of his field. Further, the research philosophies explain how the
researchers clarify themselves as per the research domain. Hence these common areas provide
the researcher with certain assumptions. These assumptions give the researcher to identify the
sense of belongingness that has a similar kind of approach. Thus, the researcher needs to
understand the basic methods and philosophies related to his domain (Nassar et al. 2014.).
Therefore, the positive accounting theory provides a useful study concept related to the
management accounting and the financial accounting concept. Further, the junior researchers
could also be beneficial from this study paper which could guide them to meet the relevant
research queries. Moreover, these research queries will help to establish the concept of positive
accounting theory in front of the researchers highly (Ohlson 2015).

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Apart from this, the American Accounting Association have published a report related to
empirical research in accounting research. This method had described the alternative accounting
research proposals. The use of scientific techniques like obstruction, reduction and other strategic
plans is initially preferred in the case of discussing the accounting research. Here the use of the
positive accounting theory is considered as a practical or suitable technique to study the overall
behaviour of the accounts and how the same interact towards the use of environmental and social
context (Alayemi 2015). Further, it has also indicated the research methodology, which is
dependent on the overall aspects of positive accounting theory. Here the researcher will
emphasize which way the research process will be heading towards. Thus, it can possibly affect
the business process through which the overall research is conducted (Scott 2015.).
Moreover, the application of this theory could also relate to the concept of social science.
There are certain miracles which deal with the underlying theoretical concepts by using the
positive accounting theory. This theory can be taken as an implementing factor towards the
social science concept. These concepts are highly related to the philosophies of accounting
research. Furthermore, there is a use of the alternative research approach which is related to
overall interpretative research approaches and the critical accounting research approach (Santoso
and Sebayang 2017).
Further, many researchers have said that the setting of these accounting standards is
highly related to the usage of Positive Accounting Theory. Therefore, company auditors and
shareholders can cater to the requirements to the interest of the company managers. Since the
company shareholders were ignoring the importance of the company, therefore it was vital that
they look into this aspect in the broader context. Further, it can also be said from this article that

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the use of the accounting research process in the social context could be helpful in determining
the needs and importance of positive accounting theory (Schroeder et al. 2019).
CONCLUSION
After analysing the research papers, it can be identified that the relevance of different
accounting theories in different situations is prominent. It can also be stated that the accounting
theories are also being improvised due to external and internal factors. The traditional method of
accounting did not alter even after the introduction of new standards. In the above mentioned
above article, it can be concluded that the positive accounting theory is a concept which could be
handy to describe the accounting research in China. Since, the company's businesses have
increased more in recent years. Therefore, the use of these accounting researches has been very
much useful in fulfilling the requirements and reducing the business gaps.
Further, the next article depicts that the research article involves two questions, which is
what to research and how to research. These research philosophies are considered as an essential
concept towards implementing these solutions. Further, there are different aspects related to the
positive accounting theory. These theories are fully connected to the research methodologies.