Positive Accounting Theory Composition

Confident Accounting Theory

Confident Accounting Theory

• At times abbreviated while PAT

• Explains and predicts accounting practice

• Does not keep pace with prescribe particular actions

• Grounded in economic theory

• Focuses on the interactions between different individuals associated with providing methods to an organisation (agency relationship) • Owners and managers

• Managers and debts providers

Great Accounting Theory

• Assumptions of PAT

• All specific action is usually driven by simply self-interest • Individuals will act within an opportunistic way to increase all their wealth • Notions of loyalty and morality are generally not incorporated in the theory • Organisations really are a collection of self-interested individuals who accept cooperate Positive Accounting Theory

• TERRY predictions

• Organisations will keep pace with put in place components to align the interests of managers from the firm (agents) with the passions of the owners (principals) • Some of these components rely on the output of the accounting system PAT - Methods to Be Explained

• So why do companies prepare accounting reports?

• Why are all those reports therefore conservative?

• What motivates the choice amongst accounting approach alternatives? • Why firms lobby for/against accounting polices?


Confident Accounting Theory

• Exploration that applies PAT usually adopts both an efficiency or perhaps an opportunistic perspective • Efficiency perspective of DAB

• Researchers make clear how contracting mechanisms may be put in place in advance with the objective of minimising firm costs, ie the costs connected with assigning the decision making procedures to an agent • Referred to as ex bet perspective i actually. e. ahead of the fact, what things are introduced up front to minimize future agency costs • Efficiency perspective also argues accounting practices followed by firms are...