Accg399

399 (week5 tutorial4)

thought activity:

1) accounting theories explain and predict accounting practices (positive theories) or prescribe particular practice(normative theories).

-Positive accounting theory:

• developed by Watts and Zimmerman

• seeks to predict and explain why accountants elect to adopt particular accounting methods in preference to others

• based on ‘rational economic person’ assumption

• individuals motivated by self-interest tied to wealth maximisation

-normative theories:

• True income theories

• make assumptions about the role of accounting then seek to provide a single ‘best measure’ of profits

• More about this next week

• Decision usefulness theories

• ascribe a particular type of information for particular classes of users on the basis of assumed decision-making needs

2) conceptual framework refers to a coherent system of interrelated objectives and fundamentals that is expected to lead to consistent standard.

the conceptual framework plays an important role in setting and issuing accounting standards and rules. standard and rule setting should be built on an established body of concepts and objectives that ensures the issuance of useful and consistent standards and rules over time. without a conceptual framework that enables the use of a common accounting language among whole constituents, rule-setting bodies may issue new standards in a random fashion, which can be detrimental to the dissemination of useful financial accounting information. moreover, the conceptual framework also enables companies to quickly resolve emerging practical accounting issues by referencing basic principles in exiting conceptual framework.

in order to develop the practice of financial reporting logically and consistently we need to address such as the meaning of financial report and the scope involved, and based on the organisation to determine entity prepare financial reports, as well as the objective of financial...