Essays on The Australian Accounting Standards Board Coursework

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The paper 'The Australian Accounting Standards Board " is a perfect example of finance and accounting coursework.   Accounting is a human activity. To study financial accounting, it is also important to study accounting theories. Accounting theories entail people’ s behavior to accounting information, why people in organizations decide to pass certain information and why people need accounting information. Theories in accounting help in many ways such in determining how assets are expected to be valued and in the prediction of choice in accounting method. There is the existence of universal theories of accounting but there is none which is accepted universally.

To select a theory, researchers look at theories which best reflect their values. Accounting standards try to reduce choices in accounting methods for the public. In the early development of the theory of accounting, theories and ideas were developed by observation. It was assumed that what the majority did in accounting practices was the most appropriate. This was a problem as not all practices are similar. Observing accounting practices could not work in the same way for all accounting situations. Theory development took place between the 1960s and 1970s.

This was referred to as the normative period of accounting research (Scott W., 2011, 230). It was inductive in nature and not driven by practices that were existing. These theories were deductive and relied on logical reasoning to develop new accounting methods. These theories tried to improve asset valuation approaches in a period where there was wide inflation. Normative theories are based on what researchers think should occur in a circumstance. This theory should be evaluated on whether it is a reflection of accounting practices but is not based on observation.

Normative theories are classified as decision usefulness theories and true income theories. In the mid and 1970s, the positive theories were established aimed at predicting and explaining a particular phenomenon in accounting. In this theory, logical deductions are made from assumptions allowing prediction. Normative theories could be useful in accounting for some individuals. However, individual thoughts on best accounting methods could be misleading, hence, having international accounting standards helps to solve this problem. Individual preference of a particular theory is usually based on the merit of argument and the employed research method.

This is because some accounting methods work for some people while others do not. Researchers may also adopt strategies to support their theoretical perspective and research (Demski, J., 1973, 720). This is appropriate as criticizing one theory leads to advancement in the accounting theories. This criticism results in the identification of problems in the theories which can be corrected by making improvements in the theories. Theories are important as they might prescribe how assets can be valued; predict why managers choose certain accounting methods over others, explain why cultural backgrounds affect information that is provided on accounting. Accounting theories are usually used to determine which accounting alternative should be in use.

Attempts have been made to determine a theory that would be useful to determine accounting alternative that is best. In making these attempts, standards such as usefulness, relevance, fairness, objectivity and verifiability to define the desired alternatives are used. Institutions on social choice also show reliance on standards. Standards formed are usually seen as accounting measurement processes, perceptions regarding the environment and environment that measurement is taken and used.

However, approaches removed from individual preferences create a lot of difficulties. Normative theories of accounting cannot be made by using such sets of standards as it may lead to incorrect and undefined specifications in accounting. Standards, therefore, work to create a universal balance which is acceptable.

References

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Demski, J., 1973. The general Impossibility of Normative Accounting Standards. American

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