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    Critical accounting theory Essay

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    There are several grounds there is no 1 universally accepted theory of accounting. The grounds are of two kinds. The first is philosophical. The 2nd is practical. This essay discusses each of these. It so provides illustrations from accounting theory.

    Philosophic grounds

    The statement “ There is no universally accepted accounting theory ” is true by definition. Scientific apprehension of the term theory denies that any theory can be universally accepted.

    Harmonizing to Popper ( e.g. , 2002a, 2002b ) , theories are speculations that are put to the trial. If they are refuted by the trial, they are either rejected or refined. If they are non refuted, they remain theories ( non “ facts ” ) . They are so set to farther trials, and are farther refined. In order for this to continue, there must be rival theories. In this manner, theories compete in a procedure of Darwinian choice. The theories ne’er get to the “ truth ” , but they get increasingly closer.

    This is the first ground there is no universally accepted theory of accounting. If there were a universally recognized theory of accounting, it would n’t be a theory. It would be something else.

    Notice that, harmonizing to Popper, no theory of all time arrives at certain cognition. The best any theory can make is restrict ignorance. Furthermore, if scientists were to detect a “ true theory ” , there would be no manner they could cognize it was true, so at that place would still be viing theories.

    This last point demands amplification. G & A ; ouml ; del ‘s rawness theorems ( see, e.g. , Hofstadter, 1979 ) demonstrate that, in any system of logic rich plenty to incorporate formal arithmetic there exists an infinite figure of statements that are true but that are impossible, in rule, for the system to cognize to be true. This means, in practical footings, that in any complex system-for illustration, an economic system-there exist solutions to jobs that are “ known ” by the system, but are non known by any person within it. This is appreciated by taking economic experts ( e.g. , Hayek, 1979 ) . Further, given that there exist normally boundlessly more incorrect solutions to jobs than right solutions to jobs, any effort to work out such jobs by diktat is boundlessly more likely to take to failure than to success. As respects economic sciences, this led Hayek ( 1944 ) to his bridal of the free market. As respects theory in scientific discipline, it means that any effort to enforce a individual theory on anything is likely to take to a earnestly incorrect theory. This is another ground for believing there can be no universally accepted theory of accounting. Any universally accepted theory could merely be universally accepted if it were imposed by diktat, and, if it were imposed by diktat, it would of necessity most likely be incorrect. Therefore it would give rise to a rival theory.

    Related to this, Feyerabend ( 1996 ) argues that there is no such thing as a individual scientific method, and that any effort to enforce one is counter-productive. Feyerabend ‘s doctrine of scientific discipline is summarised as “ anything goes ” . This, provides another ground for there being no individual theory of accounting. If there can be no universally accepted method, there can be no universally accepted theory.

    There are two popular positions of scientific discipline that are in struggle with Popper ‘s position: positivism and postmodernism. Positivism is the doctrine, associated with Ayer ( 1946 ) that says that the lone meaningful statements are those that are true by logic and those that may be verified by observation. This is the confirmation rule. The first job with the confirmation rule is that it is neither a truth of logic nor an through empirical observation verifiable fact, hence by its ain footings it is nonmeaningful. The 2nd job is that in implies science returns inductively. But inductive logic ( pulling general decisions from specific cases ) is flawed: a million observations of white swans, for illustration, does non show that all swans are white ( so, they are n’t: some swans are black ) .

    Postmodernism is the doctrine that “ world ” is socially constructed. So what is “ existent ” to one individual may be “ unreal ” to another. At a fiddling degree, this is true, for different people see the same things in different ways. It is besides true that, historically, scientific discipline progressed in some cases by alterations in universe position, or paradigm ( Kuhn, 1996 ) . However, this is a inquiry more of the sociology of scientific discipline, non of ontology. And taken literally postmodernism is absurd. It leads to the decision that there is no such thing as world.

    The prevalence of viing doctrines of science-Popperism, positivism, and postmodernism-provides another ground for there being no universally accepted theory of accounting. There is no universally accepted position of what constitutes world. Therefore one should anticipate there to be different theories of accounting, each with its cell of protagonists.

    Practical grounds

    There are three intents for any theory of accounting, and each makes different demands on the theory.

    The first is that accounting should supply the best information about a company ‘s place. Such a theory is normative, in that it suggests how best comptrollers should provide their trade. Such a point of view is said to be normative. A normative theory is one that states what is best pattern.

    A theory of accounting may besides seek to depict what comptrollers do. Any scientific discipline must include accurate descriptions. It is logically possible for a research worker to adhere to a descriptive theory yet deplore the fact that comptrollers do n’t follow what the research worker considers the “ right ” ( i.e. , normative ) pattern.

    There is another facet to descriptive theories. Until the coming of inexpensive computing machines, there was no manner that research workers could analyze huge aggregations of informations. Furthermore, really frequently the informations were unavailable ( Gaffikin ) , 2008 ) . Computers have changed this. This is another ground for believing there is no universally accepted theory of accounting. A descriptive theory is merely every bit good as the information Federal into it. But it is impossible to analyze all the information, merely different blocks of informations. Different blocks may give rise to different descriptions.

    In depicting how comptrollers behave, research workers must garner grounds. But what grounds? And how should research workers garner it? Positivists tend to utilize quantitative informations. These are informations that are, purportedly nonsubjective, and may be expressed numerically and manipulated statistically. Company gross revenues figures are an illustration. Postmodernists tend to utilize qualitative informations. These are informations that make no claim to objectiveness and are hard to show numerically. The findings of unstructured interviews-emotions, feelings, and so on-are illustrations of qualitative informations. Because of this, even when presented with the same grounds, different research workers may make different decisions. This is another ground there is no universally accepted theory of accounting.

    A theory of accounting can seek to explicate. Such theories are scientific in the Popperian sense, for they may be refuted. It is logically possible for a research worker to believe that Theory 1 is the best explanatory theory, Theory 2 is the best descriptive theory, and Theory 3 is the best normative theory. Therefore once more there are many theories of accounting. Any research worker may subscribe to three different theories, and do so without being inconsistent.

    In pattern, the differentiation between normative, descriptive, and explanatory theories is blurred. Any theory of one type may hold characteristics of the others.

    Example theories

    This subdivision considers discusses two illustration theories.

    Theory 1: Positive accounting theory

    There are several jobs with normative theory. One concerns what to come in. Consider assets. An comptroller does non cognize how much a company ‘s assets are deserving. So the accountant uses one of several indexs ( historical cost, for case ) . The comptroller must besides gauge how much assets depreciate. Accountants use algorithms to cipher depreciation-typically, consecutive line depreciation such that assets become worthless after three old ages. Such algorithms are merely loosely accurate.

    Such considerations led Watts and Zimmerman ( 1978 ) to develop positive accounting theory. The theory is in portion descriptive, in that it states what real-world comptrollers do, and in portion explanatory, in that it purports to explicate why comptrollers behave in the manner they do. The theory says, in consequence, that company accounts do non harmonize with world. Alternatively, they accord with what powerful involvements ( stakeholders, stockholders, directors ) want others to see as world.

    The theory makes two premises:

    • Homo economicus. This states three things. First, people are wholly rational. Second, people act merely out of opportunism. Third, people act merely to maximize their wealth.
    • The efficient market hypothesis ( EMH ) . This states that, left to its ain devices ( i.e. , if unregulated ) , the market delivers an optimal monetary value for any good or service. The EMH states that monetary values accord with all available information.

    The ground positive accounting theory makes these premises is that, without them, it is hard to do quantifiable anticipations, but with them it is comparatively easy. Therefore, for illustration, with them one can foretell companies in one peculiar environment will prefer a different signifier of accounting from companies in another type of environment. Therefore, for illustration, Watts and Zimmerman ( 1978 ) predict that houses whose net incomes are increased by general monetary value degree adjusted accounting ( GPLA ) will oppose GPLA, but houses whose net incomes are decreased by GPLA will favor it.

    But the impression of H. economicus is problematic-some people are stupid, some are selfless, and so on ( Lunn, cited in Clark, 2008 ) , The EMH is besides combative. Some economic experts accept it, others do n’t. The EMH is besides obscure. If the market is efficient, the EMH does n’t state how long it takes to make a determination Besides, if the EMH were true, arbitrage would be impossible. The best 1 can state about the premises is that they provide an estimate of world. How good an estimate it is, cipher knows. This is another ground there is no universally accepted theory of accounting. Some people think the premises provide a good estimate ; some people think they provide a bad one. Fama and French ( 2004 ) province that markets can be inefficient and investors can be ill-informed and irrational,

    Merely as proprietors, authoritiess, and workers have vested involvements, so have Watts and Zimmerman. In their instance, they are interested in advancing positive accounting theory. So, in this respect, the theory has a normative facet. It concerns how accountancy research workers should pattern their trade. If all research workers follow Watts and Zimmerman ‘s diktats, Watts and Zimmerman will go rich. Naturally, all accounting research workers want to be in Watts and Zimmerman ‘s place, but the lone manner for them to make so is to develop a rival theory. This is another ground there is no universally accepted accounting theory.

    Theory 2. Critical accounting theory

    Critical accounting theory is n’t truly a theory. It ‘s more a manner of unfavorable judgment. It aims, non merely to change accounting pattern, but to alter society ( Gaffikin, 2008 ) . It is political. Therefore, for illustration, Laughlin ( cited in Davis, 2008 ) provinces:

    A critical apprehension of the function of accounting procedures and patterns and the accounting profession in the operation of society and administrations with an purpose to utilize that understanding to prosecute ( where appropriate ) in altering these procedures, patterns and the profession.

    In this, critical accounting theory is postmodernist.

    Postmodernists point to the legion defects in positive accounting theory. They highlight the failings in the constructs of H. economicus and the EMH. They point out that Watts and Zimmerman use rhetorical devices to set the positions across. They argue that the methodological analysis and mensurating instruments of rationalist theories are rough, and so on. Occasionally, they make ( or repetition ) good points ( e.g. , the EMH is wrong ) ( e.g. , Mouck, 1992 ) .

    As indicated, postmodernists deny the being of nonsubjective world. In making so, they deny the possibility of finding the truth, or worth, of any statement. Therefore they deny the truth, or worth, of postmodernism.

    This is the job with postmodernism. If world is socially constructed, so there can non be a universally recognized theory, for socially constructed world differs harmonizing to who is making the constructing. A “ true ” theory to one postmodernist is a “ false ” theory to all others.

    That is why there is no universally accepted theory of accounting.


    • Ayer, A.J. ( 1946 ) . Language, truth and logic. ( 2nd ed. ) . London: Gollancz.
    • Clark, T. ( 2008, November 1 ) . Market lunacy. The Guardian.
    • Davis, D. ( 2008 ) . Critical accounting theory. Lecture 9. Lecture notes. Bangor Business School.
    • Feyerabend, P. ( 1996 ) . Against method: Outline of an anarchistic theory of cognition. San Francisco, CA: Analytic Psychology Club of San Francisco,
    • Fama, E.F. and French, A.R. ( 2004 ) . The CAPM: Theory and Evidence. On line: hypertext transfer protocol: //
    • Gaffikin, M. ( 2008 ) . Accounting theory: Research, ordinance and accounting pattern. Gallic Forest, Australia: Pearson Education.
    • Hayek, F. A. ( 1979 ) . Unemployment and pecuniary policy. San Francisco: Cato Institute.
    • Hayek, F. A. ( 1944 ) . The route to serfdom. London: George Routledge
    • Hofstadter, D. ( 1979 ) . G? del, Esther, Bach: An ageless aureate plait. Harmondsworth: Penguin.
    • Kuhn, T. ( 1996 ) . The construction of scientific revolutions. Chicago: University of Chicago Press.
    • Mouck, T. ( 1992 ) . The rhetoric of scientific discipline and the rhetoric of rebellion in the “ narrative ” of positive accounting theory. Accounting Auditing, and Accountability, 5 ( 4 ) : 35-56.
    • Popper, K. ( 2002a ) . Unended pursuit. An rational life. London: Routledge.
    • Popper, K. ( 2002b ) . Speculations and defenses. London: Routledge.
    • Watts, R.L. And Zimmerman, J.L. ( 1978 ) . Towards a positive theory of the finding of accounting criterions. Accounting Review, 53: 112-132.

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