Essays on The Main Aim of Developing Accounting Assignment

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The paper 'The Main Aim of Developing Accounting' is a wonderful example of a financial and accounting assignment. From a historical and origin point of view, accounting develops around a theoretical basis whether its own or borrowed from other disciplines. The main aim of developing accounting rests on the achievement of the desired objectives. Despite being developed with a key focus on the achievement of certain objectives, accounting is regulated. Regulation means there are certain fundamental principles governing the maxims of accounting. The question thus arises on whether accounting is solely based on these fundamental principles or developed to address the desired objectives of agents.

The following is thus a critical evaluation of this question. It follows that from the fall of the Great Depression onwards, accounting tends to base on various fundamental principles/laws and absolute precepts. The latter explains the formation of and development of the accounting standards and bodies in Australia, that are enforceable. Such would include the formation of the FRC (Financial Reporting Council) and the AASB (Australia Accounting Standards Board) (Deegan, 2009)). The latter would later adopt the IFRS (International Financial Reporting Standards) which regulate and dictate the accounting methods and financial reporting guidelines.

To cement this argument, In Australia, for example, the IASB has the ultimate control of the accounting standards. Thus, accounting bases itself on fundamental principles or laws (Deegan, 2009). On the other hand, the theories of regulation depict a situation where accounting is solely developed and created in the achievement of certain desirable outcomes. First, the Public interest theory (PIT) focuses on those regulations put across by the government in the sole interest of the public.

The government places these regulations in order to achieve outcomes that seem desirable to the public interest (Posner, 1974). Secondly, the Capture Theory reveals that accounting regulations tend to benefit those who are regulated than those who are meant to be protected by the regulations. Thirdly, the Economic Theory suggests that accounting regulations are put forward by the regulators and the governments to serve their selfish interests (Posner, 1974). An example is when there is lobbying from industry groups to reject or accept certain standards used in accounting. The latter derives from the rationality hypothesis.

In a nutshell, accounting in all these cases seeks to achieve certain desirable objectives on the parties thereof. PAT (Positive Accounting Theory) shows evidence that accounting is not based on fundamental laws, but rather created to achieve various desirable objectives. In this case, PAT shows how accounting assists in making functional relationships between various agents in the firm (Posner, 1974). For example, in a shareholder-manager relationship, PAT suggests that the manager is delegated power to decide on decisions relating to operations of the firm by the shareholder.

Thus, the managers institute those accounting methods which maximize their individual, as well as the company interests. Behavior accounting research also follows this path in the fact that it provides information on how various agents react given accounting information (Posner, 1974). For example, a company may position its financial reports in a favorable manner so as to attract investors and gain the support of its shareholders.

References

Brown, J. and M. Fraser (2006). “The Approaches and the Perspectives in the Social and the Environmental Accounting: Overview of Conceptual Landscape," The Business strategy and Environment, 15, pp. 103-117.

CCAB (2009). The Ethical Dilemmas of Case Studies for the Professional Accountants that are working as Chartered Accountants and Non Executive Directors. Retrieved from, http://www.ccab.org.uk/cutenews/data/files/CCAB_case_studies_Sept_09.pdf

Deegan, C. (2009). The Financial Accounting Theory, 3rd Ed., North Ryde, NSW, McGraw-Hill Australia.

Deegan, C. (2010). Financial Accounting Theory, 3rd Ed., North Ryde, NSW, McGraw-Hill Australia.

Kothari, S. P., & Lester, R., (2011). The Role of Accounting in the Global Financial Crisis: the Lessons for the Future. MIT Sloan Management School, Cambridge Ma.

Posner, R. A. (1974). “Theories of Economic Regulation.” Bell Journal of Economics and Management Science 5: 335-358.

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