Current Issues in Financial Accounting - Literature review Example

Current Issues in Financial Accounting Student’s Name: Instructor: Subject: Date: Abstract A lot of research, and in this respect accounting research, is classified under social sciences, have conformed mostly to scientific research –the positivist theory. But in the recent past a number of researchers argued that ontology of accounting is to large extent related to social sciences instead of the natural sciences. It is in this regard, that both the critical and positivist approach have been considered with respect to the underlying differences in the sociological research. In referring to the IASB chairman’s words, who of late argued that accounting research needs to be comprehensive in the manner it presents information and collects data; this paper presents positivist approach as his preferred form of accounting research. This paper takes an in-depth study at the role of positivist and critical approaches in accounting research. The manner in which these tow approaches may facilitate researchers to link the gap between the alternative theory which entails critical perspectives and the mainstream or functionalist theory has been considered. Whereas different researchers have championed for their preferred paradigm outlining advantages and disadvantages, it stands out clearly that there is no robust approach than the other as it is dependent on research study under examination and the researcher’s individual preference. Literature Review The foundation of many accounting researchers has for a long time in the recent past been established on the sociological grounds. Such researchers are for instance Laughlin (1995), and Hopper and Powell (1985). These researchers investigated different methodological research approaches at an accounting platform and classified them into three distinct groups; critical, interpretive, and mainstream. According to Laughlin (1995), the mainstream paradigm which he refers to as functionalism falls into the same group with realism, positivist, conventionalist, and instrumentalist approaches. On the other hand, Hopper and Powell (1985) argued that positivist researchers assume scientific approaches whilst putting much emphasis on quantitative methods. This seems to concur with Tweedie’s statement; prefer a comprehensive approach in accounting research. Besides, the authors state that positivist researchers adhere to inequalities of power in the society, although such is reconcilable towards achieving a common goal. On the other hand, critical approach to research encompasses a wide range of theories for instance Structuration, Marxism, French and German theories. According to Baker and Bettner (1997), critical approach refers to society as consisting of conflicting elements as well as being dependent on systems of power leading to separation in various life aspects. Therefore, the authors argue that positivist approach falls to the complex ramification in accounting. It is important to note that most of the research done in accounting, from a social perspective, is dominated by the positivist approach as a number of people consider it to be stronger and comprehensive compared to critical approach. It is very minimal research which has been documented using the critical approach and that in comparison, there are little problems encountered in the positivist approach which can be interpreted in respect to Tweedie’s statement. For instance, the qualitative method which is employed in positivist approach facilitates researchers to identify differences among the components under research but it does not permit examination of the reasons for why such gaps and/or disparity crops up. In contrast, Baker and Bettner (1997) have criticised the positivist while comparing it to critical approach in some aspects. Fong (1986) in his article whereby he has looked at the developments in the accounting research argues that mainstream accounting theory which entails positivist approach is based on an outstanding set of values, beliefs, and techniques which are majorly common amongst researchers. Besides, Fong (1986) argues that it advocates for hypothetico-deductivism, natural propensity to social order, physical realism, and value-free arrangement with respect to accounting research. However, an interpretive alternative such as critical approach insists on comprehending practical accounting through provision of meaningful information. The latter, call for researchers to implement a drastically dissimilar value position, and provide a way of understanding functions of accounting research in all sectors. In the same regard, Laughlin (2007) whose work focuses on critical reflections in respect to accounting research approaches argues that the field of accounting requires regulation. Therefore, he calls on formulation to eliminate any ambiguity that that may arise from the two distinct forms of research. Although the author disagrees with other previous researchers on positive accounting theory, he acknowledges that it has after a long period of time eliminated the perception that was introduced by the normative approach and seems to agree with Tweedie. Subsequently he says that positivist approach acted as a bridge between and facilitated people to understand empirical situations in accounting. The fact that the nature of accounting policy is wide and complex, it requires sophisticated research approaches what the author refers to as positivist approach which addresses such complexity. Laughlin(2007) has cited two major reasons for regulation of accounting approaches; first is the way steering committees have set standards in a dynamic environment and secondly is what he terms as ‘accounting logic’ in which researchers do not conform to but instead align themselves to their normal way of thinking. Additionally, the ambiguity in accounting- research has prevailed because the two paradigms, also referred to as a ‘market of excuses’ have not been substantiated (Watts & Zimmermann, 1979). Theses authors disagree with Laughlin by saying that the development of positive accounting theory brought about paradigm shift and clarified accounting research practices should entail. They state categorically that the main objective of any accounting research approach should be to clearly explain and forecast accounting practices. In their capacity, that held the view a given approach is not supposed to a superstructure perceived as being normative. In the same regard, Laughlin (2007) argues that research approaches consists of various aspects of assumptions as well as comprehensive alternatives for data collection. Hence, by choosing a particular approach, a researcher opts for a coherent way of thinking which requires to be employed in accordance with to its methodological underpinnings. Boland and Gordon (1992) acknowledge that the most preferred type of accounting research which has been widely emphasized in the positivist approach. The authors seem to agree the theoretical perspective of Positive Accounting Theory that was proposed by Watts and Zimmermann (1979). Their article has from a critique point depicted three perspectives; critiques with regard to problems of technical research methods, the current philosophy of issues in science, and the limitations involved in economics-oriented forms of accounting research. Their article is counter-attack to Watts and Zimmermann (1979) who claimed that approach criticism had not influence on accounting research. In their work, they argues that positive accounting approach is more preferably employed in economic positivism and they champions for critical approach by presenting positive approach as a rhetoric rather than being more methodological. But finally, the article argues that even if the critiques against the positive are not outstandingly effective, the critical approach accounting research insists on limitations of equal analysis by offering an avenue to critique the positive approach. Subsequently, Lukka (2010) in his research study focuses on the effects and paradigms that result from application of different accounting research approaches. There is narrowness in these two research approaches with respect to theoretical underpinnings and assumptions. According to the author, mainstream accounting seems to be the root cause of such narrowness as well as undue openness. The author classifies positivity approach as a mainstream accounting approach which has dominated for along period of time. The author writes that positivist approach is exclusively passé in accounting from a social science perspective and it is as well more popular than critical approach. In comparing the two, he says that it conforms to law-like procedures compared to critical approach. One probable result of such positivist approach in accounting research is many executable forms of research in may go unconsidered hence limiting the extent of intellectual activity especially within the academic circles. In another research study, Modell (2010), while focusing on classifies positive and critical approaches into mainstream and alternative paradigms respectively. Thus he has emphasized on integrating the two methods to result in mixed method of accounting research. This from of combination, he says, is applicable in management accounting in particular. In cases were the two methods have been used, accounting researchers are capable of combining broad and depth concepts in their empirical analysis to facilitate validity of their research with the results being ultimately used in management accounting. Furthermore, the author says that barriers may be experienced in combining the two, but on the other hand acts as stimulator to dialogue between them. Fro that reason he traces such impressions to the positivist approach and intense research propagated. The author has acknowledges that the primary challenge encountered in the two approaches is to establish substantive issue of interest in the two paradigms because they are more predisposed to focusing on various aspects whilst seeking to answer different questions. Watts and Zimmerman (1990) in their research study have critiqued and reviewed the positivist approach after previous studies generated a lot questions in regard to the accounting practice. Some of the research proposed the significance of contracting costs leading to detection of previously unearthed irregularities. Thus they have looked at the positivist accounting approach from methodology point of view as well as long-held misconceptions that were propagated by proponents of positivist approach. They have out-rightly criticised the positivist approach and have suggested a number of ways to improve it. Such include integrating both the theory and empirical results. Besides, there need to be developed afew models to that will put into consideration the endo-geneity of the variables as well as reducing measurement errors among them. The authors have commented that unlike other approaches, positivist approach generates breakthrough if accounting research can be viewed as an option which is inherent to a particular organization and financial practices. Consequently, Martens and Stevens (1993) in their study have focussed their attention on accounting research with respect to the positive accounting theory that was proposed by Zimmerman and Watts. The difference between forms of accounting research as proposed by the aforementioned authors stand out clearly from those of accounting behaviour which according to them are influenced by researcher or accountant him/her-self. The authors have categorically criticised the positive approach for dwelling too much on realistic methods of research. Thus, positive approach has been displayed as arguing on the basis of actual results that will be realised. They have therefore advocated for the criticism approach to accounting research as it objectively facilitates analysis of results without creating any ambiguity. Thorough presentation of evidence in a research benefit scheme, the research study reveals that positive approach to accounting research is depicts the theory as failing to support what was claimed by Watt and Zimmerman. Therefore, critical approach has been presented as the better approach in accounting research as mot uncertainties are left behind. It is important to explain the worthiness of rhetorical comprehension of the accounting research practice (Arrington & Schweiker, 1992). Arrington and Schweiker (1992) argue that claim that in spite of methodological variations between the two approaches, critical and positivist, there exists a considerable ubiquity between the two among scholars. Hence, they have continued to say that regardless of the alignment of a researcher (a critique or positivist), the type of queries the researcher seeks top address, the principles applied in coming up with solutions, language applied, and the values and purpose specified in the research work, it will make no sense until such work is peer-reviewed. Therefore, the authors seem to leave open the validity of an accounting research work to be judged hence disagreeing with Tweedie’s statement. According to the authors, although rhetoric can and will not substitute the various substantive methods ways in which researchers in accounting are/will generate accounting knowledge, the same case applies because the substantive ways do not replace rhetoric. Therefore, they insist that clear understanding of the role of rhetoric in any form of research is imperative in order to understanding accounting research practices and related knowledge produced. Hence, the authors do not depict any difference to exist between the two approaches contrary to Tweedie’s statement who advocates for a comprehensive approach -positivist. Conclusion Finally, explicitly or implicitly, it stands out clearly that any form of accounting research is steered through by a number of philosophical beliefs. Comparing the two approaches, positivist and critical approach, it is evident that the latter is not widely used whereas the former has been employed in a lot of research. Positivist approach encompasses a scientific-based approach as well as quantitative techniques which enables researchers to establish cases in which disparity occurs. For that reason, in my opinion would say that positivist approach is more robust and agree to Tweedie’s school of thought. As a social science, accounting research is more specifically founded on postulations of the environment of the social life. Besides, the difference between objective and subjective views of researchers has led them to adopting these two different approaches. But also in some respects, each approach complements the other’s voids or weaknesses hence I would say disagree with Tweedie’s words because the choice of approach is largely dependent on researcher’s preference and issues being studied. References Arrington, C. E. & Schweiker, W. (1992). The rhetoric and rationality of accounting research. Accounting, Organizations and Society, 17(6), 534. Baker, C.R. and Bettner, M.S. (1997) Interpretive and Critical Research in Accounting: A Commentary on Its Absence from Mainstream Accounting Research, Critical Perspectives on Accounting 8 (4): 293- 310. Boland, L.A., & Gordon, I.M. (1992).Criticizing positive accounting theory. Contemporary Accounting Research, 9(1), 142-170. Fong, C.W. (1986). Radical Developments in Accounting Thought. The Accounting Review, 61(4), 610-633. Hopper, T and Powell, A., (1985) Making Sense Of Research Into the Organizational and Social Aspects of Management Accounting: A Review of Its Underlying Assumptions, Journal of Management Studies 22(5): 429-465. Laughlin, R. (1995) Methodological Themes: Empirical Research in AccounTing: Alternative Approaches and a Case for “Middle-Range” Thinking, Accounting, Auditing and Accountability Journal 8 (1): 63-8 Laughlin, R. (2007). Critical reflections on research approaches, accounting regulation and the regulation of accounting. The British Accounting Review, 39(4), 271-289. Lukka, K. (2010). The roles and effects of paradigms in accounting research. Management Accounting Research, 21(2), 110-115. Martens, S. & Stevens, K.T. (1993).Positive Accounting Theory and the Obligation for Post-Retirement Benefits, Critical Perspectives on Accounting, 4(3), 275-295. Modell, S. (2010). Bridging the paradigm divide in management accounting research: The role of mixed methods approaches. Management Accounting Research, 21(2), 124-129 Watts, R.L., & Zimmerman, J.L. (1979). The demand for and supply of accounting theories, The Accounting Review, 54(2), 273–306. Watts, R.L., & Zimmerman, J.L. (1990). Positive accounting theory: a ten year perspective. The accounting review, 65(1), 131-156. Read More