Development Of Accounting Theory

Question 1
Describe the different approaches that have evolved in the development of accounting theory.
1.1 Empirical Approach
A substantial increase in empirical research the early 1970s which was designed to make accounting research more rigorous and to improve the reliability of results. Sophisticated statistical techniques became increasingly used for this purpose. Furthermore, the expansion of university courses in accounting increased the number of students with a quantitative background, who could conduct research in this way. The implications of the empirical approach to research in accounting were significant in the development of accounting theory.
Empirical approach helps in making ‘forecast’, as they consist of generality which

This approaches recently attempts in developing the conceptual frameworks for financial reporting (Underdown, 2001).

1.3 Welfare Approach
Welfare approach is the extension of decision-making approaches, it considers the effects of decision making on social welfare. Basically, decision-making approaches limit the fields of interest to the personal use of accounting information. If accounting information had a relevance limited to personal interests, the decision-making approaches could provide a sufficient analysis of information needs. This is due to the external social effects of decisions done according the basis of accounting information that there may be imputed a social-welfare dimension to accounting theory. The effects of financial information on welfare may be viewed from the standpoint of the vested interests of groups within an organization. It is evident that the alteration of accounting policies in favour of one group and away from another will affect the distribution of income and wealth within society. In this respect, the movement towards disclosing information to employees and the concept of social accountings, are clearly causing such a change (Underdown,

The assumptions of the efficient market hypothesis had received glut support from analysis findings. These findings indicate the accounting information will have economical significances in the share prices respond to latest accounting information. Furthermore, analysis shows that the Stock Exchange responds rapidly to the public promulgate of info. Analysis also indicates the sudden change of price arise on the proclamation of the latest info, but no obvious price changes thenceforth, as the adjustment made at the moment removes the probability of future aberrant returns to personal investors. This discovered behaviour is according to the behaviour of an efficient