A Positive Accounting Theory

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1. Positive Accounting Theory A positive accounting theory is a theory that explains and predicts a particular phenomenon. Positive accounting theory (PAT) seeks and predicts accounting practice. It does not seek to prescribe particular actions. According to (Watts, 1986), “positive accounting theory is concerned with explaining accounting practice. It is designed to explain and predict which firms will and which firms will not use a particular accounting method, but says nothing as to which method a firm should use. “ The word “positive research” was used to distinguish research that sought to explain and predict from research that aimed to provide prescription. It is one of the several popularized positive theories of accounting. Some examples …show more content…

Unless we have an agreement on such central issues, it is difficult to understand how logically consistent accounting standards can be developed. Conceptual Frameworks are developed to provide guidance on key issues, such as objectives, qualitative characteristics, definitions and recognition …show more content…

Utilizing the discussion in policy statement 5, the benefits can be summarized as follows: 1. Accounting standards board should be more consistent and logical, because they are developed from an orderly set of concepts. The view is that in the absence of a coherent theory, the development of accounting standards could be somewhat ad hoc. As the ISAB and FASB, states “ to be principles-based, standards cannot be a collection of conventions but rather must be rooted in fundamental concepts for standards on various issues in coherent financial accounting and reporting, the fundamental concepts need to constitute a framework that in sound, comprehensive, and internals by consistent.” 2. Increased international compatibility of accounting standards should occur, because they are based on a conceptual framework that is similar to that in other jurisdiction (for example, there is much in common between the IASB and FASB frameworks). 3. The AASB and FASB should be more accountable for their decisions, because the thinking behind specific requirements should be more explicit, as should any departures from the concepts that might be included in particular accounting

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