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Summary Of Accounting Theory Essay

480 words - 2 pages

Agency theory is based on the assumption that the individuals act to maximize their own expected utilities

Relationship between one person (principal) entrusted to another person (the agent)

RESIDUAL LOSS
*Loss associated with no being able to fully align the intrst of principal with their agent
BONDING COSTS
*cost borne by the agent as a result of the aligning their interst
EG:
i)agent prepare the fs(effort & time)
ii)Constraints manaher xtvt
MONITORING COST
*the cost observing & monitoring the agent’s behaviour

EG:
I )auditing cost
ii)Budget restriction
iii) Operating rules

Agency Costs
-due to self interst, the agent may act for their best interest.
-Agency problem give rises the agency costs

JENSEN & MECKLING (1976)
*Contract under ...view middle of the document...

DIFFERENCE BETWEEN NORMATIVE & POSITIVE
POSITIVE THEORY
-Explain what happening in real world
-Explaining reasons for current practice
Predicting the role of accounting information in decision making
TRUE INCOME
-deriving a single measure for assets and a unique profit figure
-no agreement on what constituted a correct or true measure of value of profit
NORMATIVE THEORY
-accounting researcher became more concerned with policy recommendation
-what should be done

DECISION USEFULNESS
-Basic objective of accounting is to aid the decision making process for certain users
EG: to help investor to buy or sell share
CRITICISMS OF HISTORICAL COST AS THEORETICAL MODEL
-Interpretation of traditional historical cost acctg is syntactic theory
-semantic =transaction & exchanges recorded in voucher, journal,ledger of buss
-this info will manipulated to historical cost accounting
-theory has semantic content only on the basis of its input
-no independent empirical operation to verify the calculated outputs
SEMATIC
-Relate the basic concept of theory to object in real world
EG:
Premise 1 : All asset a/c has dr balance
Premise 2: Sales return a/c is not an asset
Conclusion: Sales return has dr balance
-Conclusion are based on accuracy and actual return
SYNTATIC
-include logical relationship
-relies upon on premises or statement
EG:
Premise 1 : All a/c relating to asset have dr balance

Premise 2: Accumulated depr a/c relates to assets

Conclusion: Accumulated
depr has dr balance

-Even though the conclusion was wrong, but does not matter, as long as it is logic

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