Current Development in Accounting Thoughts

Question 1 (1000 words maximum)

Explain why theories need to be evaluated. Identify and justify the factors you would consider before deciding that a theory appears sound. Apply the factors you have identified to an accounting theory of your choice (e.g. Normative, Positive etc).

A theory could be defined as a consistent set of concepts that are aimed to explain and foresee a particular occurrence or “phenomena” (Kerlinger, cited in Mathews & Perera, 1996, p.51). Accounting theory could be described as a group of practical constructs that implementconjectures on accounting issues into accounting procedures (Sterling, cited in Mathews & Perera, 1996). This definition usefully relates accounting theory and practice.

In order to provide a pertinent explanation and expectation of phenomena theories need to be evaluated. The evaluation is crucial if one aims to determine whether a theory is valid for application in practice or research or in order to set preferences towards particular theory among the alternatives. For instance, some theories enable people to negotiate “ambiguity, contradiction or paradox” and “generate expectations about the world” (Llewlyn, 2003, p.665). That also could be said about accounting theories that attempt to “explain” and “predict” particular patterns and perspectives in accounting processes (Deegan, 2009, p.5). These particular theories are referred to as ‘positive’ theories (Deegan, 2009). They are destined to describe or explain a phenomenon and use inductive approach as their method of reasoning to picture things as they are (Deegan, 2009). As an alternative to positive theories researches distinguish normative theories that are based onprescriptive approach and deductive method of reasoning to provide an overview of how things should be organised (Deegan, 2009). Evaluation of theories against a set of certain criteria provides an insight into whether to apply a theory and which approach is more preferable in the given...