INTRODUCTION TO FINANCIAL

ACCOUNTING THEORY
ALMI HAFIZ
DINA AGHRA OKLARIMA
MOCHAMAD RISNANDA
WHAT IS A THEORY?
According to the Oxford English Dictionary, Theory is a scheme or
system of ideas or statements held as an explanation or account of a
group of facts or phenomena
WHAT IS A THEORY?
• explain why particular accounting rules are mandated by regulators in
preference to others
• prescribe how, based on a particular perspective of the role of
accounting, assets should be valued for external reporting purposes
• predict that managers paid bonuses on the basis of measures such as
profits will seek to adopt those accounting methods that lead to an
increase in reported profits
• seek to explain how an individual’s cultural background will impact on
the types of accounting information that the individual seeks to
provide to people outside the organisation
WHY IT IS IMPORTANT FOR ACCOUNTING
STUDENTS TO STUDY ACCOUNTING THEORY?
• As a student of financial accounting you will be required to learn how
to construct and read financial statements prepared in conformity with
various accounting standards and other professional and statutory
requirements.
• In your working life you could be involved in such activities as
analysing financial statements for the purposes of making particular
decisions.
A BRIEF OVERVIEW OF THEORIES OF
ACCOUNTING
• INDUCTIVE ACCOUNTING THEORIES
• EXPLANATORY AND PREDICTIVE (POSITIVE) ACCOUNTING
THEORIES
• PRESCRIPTIVE (NORMATIVE) ACCOUNTING THEORIES
EVALUATING THEORIES OF ACCOUNTING
As previously discussed, there are 2 accounting theories in general,
positive theory and normative theory. Where each researcher has his own
view of the two theory. In providing arguments against the contribution
or validity of Positive Accounting Theory, the opponents used such terms
and descriptions as:
• It is a dead philosophical movement (Christenson, 1983, p.7)
• It has provided no accomplishments (Sterling, 1990, p. 97)
• It is marred by oversight, inconsistencies and paradoxes (Chambers,
1993, p. 1)
• It is imperiously dictatorial (Sterling, 1990, p. 130)
CAN WE PROVE A THEORY?
One’s view about whether we can prove a theory as correct depends on
how one views the development of scientific thought.
EVALUATING THEORIES—CONSIDERATIONS OF
LOGIC AND EVIDENCE
• EVALUATION THROUGH LOGICAL DEDUCTION
• EVALUATING THE UNDERLYING ASSUMPTIONS
• UNIVERSAL APPLICABILITY OF THEORIES
• GENERALISING THEORIES FROM THE TESTING OF SAMPLES
TERIMA KASIH