Positive Accounting Research: A Critical Analysis and Evaluation

This report provides a critical analysis of positive accounting research, examining its epistemological and ontological assumptions, and its application in the accounting field. It critiques the use of quantitative models and hypothesis testing, suggesting improvements in theoretical models and measurement techniques. The report explores the significance and limitations of positive accounting research, including the application of Kuhn's and Popper's theories. The research identifies common problems in positive accounting research, such as the undue emphasis on hypothesis testing and the lack of focus on parameters estimation and replication. The report concludes by advocating for the testing of competing theories and offers recommendations for improving the development of accounting theories, emphasizing the need for better measurement and data archives.

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Half A Defence Of Positive Accounting Research

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Table of Content
Introduction.......................................................................................................................3
Summary of findings.........................................................................................................4
Research question..............................................................................................................5
Theoretical framework......................................................................................................7
Significance and limitations of article...............................................................................8
Conclusion.........................................................................................................................9
References.........................................................................................................................10

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Introduction
The paper has a focus towards the positive approach use in the accounting research. The
report presents the epistemological and ontological assumptions that are required for any
scientific research to be an intellectual project, and argues that these assumptions may turn
out to be wrong; they may not be absurd or illogical. The positive or scientific research in the
accounting is assumed to be a defensible activity. The suggestions offered for the quantitative
positive research. The report assumes that there is a need to have better theoretical models.
Models that are highly vulnerable and specified must be taken as serious subjects for detailed
analysis. Report concludes that the use of ad hoc quantitative models that are mere statements
of expected signage of relationship between the two variables create disappointing progress
in the area of positive accounting research,. The models that are emerged from the analytical
research are reported by the article as not structured to test because they are poorly developed
or they concentrate of the tractability. The concepts are not well defined theoretically to
implement. The report identifies that there is a requirement to have better measurement
therefore to make theoretical models rigorously tested. Report draws facts that concepts have
to carefully operational zed by identifying the proxies for other attractive concepts. Attention
needs to be focused towards selecting the right functional form as the report suggests and it
demands that the correct functional form must have a linear relationship with other notions.
The report concludes that after recognizing the relevant way to measure a concept the
measurement must be used as a standard for forthcoming studies that re invention of the
measurement again for every study. The reliable measure of complexity of audit is once
determined, then the measure must be used than re estimation of the parameters in new study.
The report identifies the needs to focus towards parameters estimation. Report suggests that
parameters confidence intervals must be compared with the predictions of the parameters or

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with the other studies comparable measurements. Report considers that there is a need to
have the data archives measurement regarding important concepts. The important concepts
must be able to test specific theories and offer contribution to archive. Report concludes that
there is a requirement to have the replication for validating the findings from hypothesis
testing to ascertain the measurements accuracy and to explore the research findings
application limits. The concluding remark offered by the report reveals that studies need to
take into account to test the competing theories than to rely on a single theory as sufficient
way to examine the set of data. Report identifies that the research in positive accounting has
contribution to gain understanding about the human behaviour. It is due to the unique setting
and consideration of specific range of behaviours that the accounting section encompasses.
Report also examines the suitability of Kuhn description of normal science for the positive
accounting research. It suggests that the functional deficiencies are essential characteristics of
social system of positive accounting research. The system purpose is to provide ready supply
of puzzles that can be answered with little difficulty. Report also identifies that there may be
some reasons to suppose that social system may be stable definitely and asserts that crisis
generally does not lead to adoption of a new system that is better suited to advancing the
knowledge.
Summary of findings
The research conducted in this article presents that consideration of positive accounting in the
broader concepts is necessary to build the causal explanations of behaviour of human in the
accounting settings. The ontology and epistemology are examined. It is found that statistical
hypothesis testing in much weaker even if it is analogous to the popper’s falsification
criterion. The broad positivist program is identified by the research as very powerful but it is
let down by the deficiencies in its practice. The common problems identified in the broad

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positivist research program are undue relevancy of the hypothesis testing, casual construction
of theoretical models testing, numerical values of the parameters do not preferred by
researchers, insufficient imitation to produce sufficient confidence in accepted findings, and
the use of the theories as lenses to inspect qualitative data than as explanations for testing.
The report finds that Kuhn description about the normal science is suiting well with the
positive accounting research.
Research question
The researcher has tried to explore how the positive research has been applied in accounting
and this is the main question of the research to identify the drawbacks of positive research
over the accounting to suggest the deficiencies in implementation of positive research.
The examples of positive research use in accounting have been furnished by researcher. The
watts and Zimmerman proposed the positive accounting theory by stating that accounting
phenomena takes places by the operation of rational self interests among people who
generally interact by the implied or express contracts. This phenomenon considers the
accounting choices, pricing and reporting, expert advice, and standard setting decisions.
Researcher further provides the references of others work to justify that other areas of
positive accounting research may not be worthy. Fukuyama has suggested that rationale and
self interested human behaviour can be correct about the eighty percent. This reveals that
exceptions take place in rationality in human behaviour. Researchers further supports his
argument by furnishing evidences about the audit experts lack of judgement making, different
ways to present the accounting information that affect the ability of users to absorb the
information and persistence of managers regarding the mistaken decision. Further the
method of Popper has been considered by author to justify that a single theory is not suffice
to falsify and there should be more than one theory to select one theory to falsify. The

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researcher also provides arguments that as long as there is potentially testable description of
the theories about the cause and effect relationship about the world they are working. The
positive research is considered as the qualitative theory development but this approach
prevents to test the validity of the positive research. The theorists consider a framework to
apply and then to draw the findings that is a short coming of positive research. The researcher
presented the use of Foucault’s theory application that brought biased results.
Further researcher has tried to establish a point that researchers have believed that the
qualitative theories are lenses or guiding factors that should not be tested and it is not feasible
to test them. But researcher argues that these qualitative studies are only claims and they are
open for discussion to establish validity. Therefore the qualitative researches have failed to
produce the key question. But the quantitative accounting theories do consider testing their
theories validity at least.
In the quantitative positive accounting theory the logic of hypothesis is considered by the
researcher to justify that positive research is not practiced with desired intent. The Popper’s
logic is not clearly implemented by the approach of hypothesis. Many technical difficulties of
using the hypothesis testing are mentioned by researcher. Therefore the researcher
recommends using the estimation not hypothesis for testing.
The consideration offered by the researcher to provide arguments for his research question
show the requirements of vulnerable models stringent testing. He claims that there should be
shift to verisimilitude from tractability. He claims that there should be focus on the
measurement than testing. It is found that validation of proxy’s formulae in accounting
research is not considered sufficiently. He has provided sufficient evidences to show that
theories that take place in the empirical papers of accounting are not very good and
development of theory is suffered from the lack of data.

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To eradicate this delinquency in the accounting system, researcher suggested considering the
Kuhn scientific views. Kuhn scientific views assert that in normal science there are set of
beliefs, practices and attitudes that are adopted by the members to solve the big numbers of
linked puzzles. Researcher propounds that Kuhnian approach is feasible for the development
of accounting theories.
Theoretical framework
There are various theories used by the researcher but the main theory is the positive
accounting research theory proposed by the Watts and Zimmerman that considers that good
prediction about the real world events are necessary to translate them into the accounting
transactions. The intention of the positive accounting theory is to provide the choices of
policies of accounting across the doffing firms and it considers the economic consequences.
Watts and Zimmerman assume that firm want to optimize the prospects for survival and they
are assumed as the contract accumulation. The positive accounting theory considers to
minimise the contract costs and to adopt flexibility in framing the accounting policies. The
positive accounting theory can be achieved by changing the accounting policies, managing
the discretionary accruals, and timing of the adoption of the new accounting standards,
changing the real variables in the areas of R&D, maintenance, repairs and advertising and by
capitalizing the operating expenses (Positive accounting theory, n.d.). There are several
benefits of positive accounting theory. The positive accounting theory promotes the agility in
decision making and predicts the future. But there are many drawbacks as well. First is that it
does not provide prescriptions for the practice of accounting. It is not able to differentiation
between bad or good accounting policy of the company. the researchers did not considers the
relationship between the accountants and managers. The hypothesis drawn from the positive
accounting theory are based on the large companies that are politically sensitive in the well

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developed countries but the hypothesis findings may be different for small companies from
the middle income economy nations.
The Kuhn theory is used to provide the rationality to support the findings by the researcher.
The Kuhn theory is related with the natural science where the arguments are offered that a
paradigm can be replaced when the puzzle solving of the normal science does not take place
by the paradigm. According to him, the anomaly takes place when the puzzle is unable to be
solved. The crisis period brings the new methods and approaches and the same theoretical
concept has been suggested by researcher to be adopted for improvement in accounting
theories. The Popper’s theory is also used by the researcher to show the relevancy of work of
Popper to develop the accounting policies and theories.
The significance and limitations of the article
The significance of the article reflects in the facts well supported by the identification of the
issues that accounting industry currently facing. It has sufficiently drawn the issues of
accounting about the poor development of accounting policies and theories. It assumes that
the positive accounting research is confused with the qualitative research and even
quantitative research needs some guidance. These are the valuable insights developed by the
researcher.
But the theoretical framework chosen by research itself suffers from many shortcomings. One
is the approach of positive accounting theory that does not make differences between good
and bad policies of accounting of organizations that put an ethical dilemma for the company.
The suggestions offered to accept the Kuhn model shows problems with the paradigms that
show that old paradigms should be completely replaced by new paradigms. Another problem
of adopting the Kuhn model to develop the accounting theories is its revolutionary nature that

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considers a drastic change that is not rationale and practical. The practical aspects of Kuhn
model do not reveal much feasibility to practice it because the rationality crisis is a premature
idea.
Conclusion
The conclusion drawn from this analysis reveals that even if there are many shortcomings in
the development of accounting theories have been identified by researcher, he is unable to
provide a better alternative to develop the accounting theories. The suggestions to adopt the
Kuhn model and to Popper’s model do not seem practicable and they lack the reliability
factors. Therefore it is concluded that the rationality factor that researcher tries to suggest by
recommending certain alternative themselves suffer from impracticability and hence are not
well accepted.

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References
Rudžionienė Kristina. POSITIVE ACCOUNTING THEORY: ADVANTAGES AND
DISADVANTAGES
Http://erd.asu.lt/ssaf/article/view/184
Thomas Kuhn's Theory of Scientific Revolutions
Http://bertie.ccsu.edu/naturesci/philsci/Kuhn.html
criticism of Kuhn;s SSR
http://www.loyno.edu/~folse/Kuhn2.html
Dunmore Paul V, (2009). Half a Defence of Positive Accounting Research✩
http://sydney.edu.au/business/__data/assets/pdf_file/0012/59988/Paul_Dunmore_MEAFA_2
010.pdf