Accounting Theory and Conceptual Frameworks

8

Accounting theory and

conceptual frameworks

After studying this chapter you should be able to:

& explain what accounting theory is

& describe the main attempts at constructing an accounting theory

& appraise current developments in the area

& describe and discuss the contents of the IASB Framework

& appraise the quality and usefulness of the IASB Framework in the context of its

self-declared purposes

& describe and discuss the parts of IAS 1 relating to accounting concepts and

policies

& appraise the overall effect of the Framework and comparable parts of IAS 1.

Introduction

This chapter is about to deal with something that many people believe does not exist – a

single generally accepted accounting theory. There is no generally accepted accounting

theory at this time even though many attempts have been made to formulate one.

According to Eldon S. Hendriksen in Accounting Theory (1977),

Theory as it applies to accounting is the coherent set of hypothetical, conceptual

and pragmatic principles forming the general frame of reference for a field of

inquiry. Thus accounting theory may be defined as logical reasoning in the form

of a set of broad principles that

1 Provide a general frame of reference by which accounting practices can be

evaluated and

2 Guide the development of new practices and procedures.

Accounting theory may also be used to explain existing practices to obtain a

better understanding of them. But the most important goal of accounting theory

should be to provide a coherent set of logical principles that form the general

frame of reference for the evaluation and development of sound accounting

practices.

Let’s compare this with what many believe is the accounting framework, the IASC

Framework for the Preparation and Presentation of Financial Statements. This Framework

purports to:

1 assist the board of IASC in the development of standards and review of existing

standards

2 provide a basis for reducing the number of...