Accounting Theories Development - Essay Example

Theory Construction, Measurement and History of Accounting Name:Lixiao Zheng Institution: Date: Table of Contents Table of Contents 2 Accounting Theories Development 3 Introduction 3 Theory Development 3 Theory Evaluation 4 Theories Factors Evaluation 5 Theory Evaluation Example 5 Conclusion 6 References 7 Accounting History 8 1800-2000 Period History 8 Social Construction in Accounting 9 Personal Reflection 11 Conclusion 12 References 13 Accounting Theories Development Introduction The accounting profession has developed and evolved over the years through increased theory development as well as relationship with social needs in the global market. As such, the profession through its international bodies and standards has increasingly developed standardised operational theories and practices the theory development process are discussed below. Theory Development Induction and deduction， well known as the two fundamental approaches favored in developing a theory, have regard and apply the use of a hypothesis verification and confirmation in ultimate theory confirmation process. The primary difference between them is that the inductive reasoning uses observation to develop a theory but developing a theory by deduction is based more on the use of logic rather than observation (Deegan 2014). Moreover, the deductive theory development approach includes the process through which a theory is developed through a logic deduction process. As such, the theory is developed from a general observation and the process narrows down to increased specificity through a logical thinking process. On the contrary, an induction theory development process, includes the application of a creative thinking process in which unlike the logical thinking process that starts with general ideas and seeks to prove them, the creative thinking process develops ideas from specific abstract ideas to the general aspects of the idea. Additionally, In order to authenticate and prove the theory, a hypothesis is subsequently developed. Wall, Stark and Standifer (2001) stated that the developed hypothesis includes specific statements that need to be approved. This includes the development of a hypothesis that is later proved through observations. On the contrary, an induction theory development process applies a reverse approach. In this case, instead of developing from general observations to specifics, the induction process starts with specific observations and finally the theory are developed (Wall, Stark & Standifer, 2001). Theory Evaluation It is important to evaluate theories and evaluate their application prior to their acceptance and incorporation into literature. On one hand, theory evaluation establishes the extent and nature to which such arguments are realistic and applicable in accounting (Baldwin, Perry & Moffitt, 2004). Despite the theoretical correctness of a theory, it should be applicable in accounting. Therefore, a mature theory should be evaluated on the applicability, reliability, predictability and breadth. Only by this rigorous feasibility study can the new-borned theory be accepted and enriched. In addition, a reliable theory should be timeless – at least over a long period of time. In this case, developed theories should not only be applicable in the short run, but also in the long run period into the foreseeable future. Therefore, prior to accepting a theory it is imperative that a theory application should be evaluated. As such, the application should be based on the applicability of the theory in the society (Deegan, 2014). In addition, Rest (1994) argued that the process of theory evaluation is important in that it helps in the process of authenticating and affirming on the ethical aspects of a theory. In this regard, a theory should not only be factual and applicable but also ethical with respect to accounting principles. Theories ethical aspects enable increased theoretical acceptance and applicability. Therefore, based on the above analysis and review on the justification and merits of theories evaluation prior to their acceptance it is evident that failure to evaluate theories in any way prior to their acceptance through the discussed process would lead to their eventual rejection and failure to fit in and perform the expected theoretical needs and functions preceding their establishment (Rest, 1994). Theories Factors Evaluation In order to establish and authenticate on a theories it is imperative to evaluate a range of key factors. The main factors evaluation on theories is the aspects of logic and evidence. In this regard, in order for an accounting theory to be acceptable it should demonstrate evidence of application as already stated, but also be logical in that its development is based on logical development and improvement and critic of existing accounting theories. As such, an accounting theory is acceptable only if its applicability in accounting functions is shared with consistency with other accounting theories (Deegan, 2014). Logically, any developed theory prior to its evaluation must demonstrate consistency and continuity with other theories already existing. Although new theories could present new ideas, some of the arguments background should be based on already existing theories in the accounting field (Little, 2013). On the other hand, a theory ethicality conformance enables a theory acceptance based on the assumption that it conforms to society needs and beliefs. In particular, a theory should be based on the evaluation of its conformance with professional values under fields in which a theory is proposed for inclusion. On the other hand, the evaluation of a sound theory prior to its acceptance is the aspect of applicability. In this regard, in order to affirm and conclude that a theory is sound, it should be applicable for the longest time possible (Sornarajah, 2004). Therefore, it should not only appear right in the present circumstances but also applicable and relevant with changing trends into the future. Theory Evaluation Example The above listed factors can be applied to evaluate the soundness and applicability of the accounting matching concept theory. The accounting profession positive theories are based on statistical facts. In this regard, the positive theories are based on an evaluation of financial information and consequently developing reviews and conclusions based on the information findings. As such, the positive theories in accounting are objective and evidence based. One example of such a positive theory in accounting， proposed by Pandikumar (2007) stated is the accounting matching concept theory. On one hand, the theory is logical and passes the logical evaluation aspect. In this case, it builds on and is consistent with other accounting theories. Moreover, logically with respect to ethics, the positive theory is based on the principles of accountability and transparency which are the fundamental bases of professional code of conduct as well as societal values (McEwen, 2009).On the other hand, with respect to the evaluation of evidence, the matching concept theory integrates and closely relates with other positive theories in accounting such as the revenue generation theories thus making its acceptance and application in the accounting profession possible. Conclusion In summary, this evaluation argues that while the deduction process develops a theory logically form general to specific, the induction process starts with the specific to the general theory aspects. Moreover, it evidences the need to confirm theories to boast their acceptance and validity prior to acceptance based on their acceptability and ethicality in the accounting profession. References Baldwin, J. R., Perry, S. D., & Moffitt, M. A. (2004). Communication theories for everyday life. Boston: Pearson/Allyn and Bacon Deegan, C. M. (2014). Financial accounting theory. North Ryde Australia: McGraw-Hill Education. Little, T. D. (2013). The Oxford handbook of quantitative methods. New York: Oxford University Press. McEwen, R. A. (2009). Transparency in financial reporting: A concise comparison of IFRS and US GAAP. Petersfield, Hampshire, Great Britain: Harriman House. Pandikumar, M. P. (2007). Management accounting: Theory and practice. New Delhi: Excel Books. Rest, J. R. (1994). Moral development in the professions: Psychology and applied ethics. Psychology Press. Sornarajah, M. (2004). The international law on foreign investment. Cambridge, UK: Cambridge University Press. Wall, J. A., Stark, J. B., & Standifer, R. L. (2001). Mediation a current review and theory development. Journal of Conflict Resolution, 45(3), 370-391 Accounting History The accounting profession has developed and evolved over the decades to its current status. This essay review focuses on the profession developments between 1800-1200 period evaluating evidence in the history process of accrediting the accounting profession as a social construct. 1800-2000 Period History The accounting history between 1800-2000 can be categorized into three stages namely the general scientific period, normative period and the specific scientific theory periods respectively. On one hand, the general scientific period run through 1800-1900 years. In this period ground rules on accounting were established. For instance, this period was characterized by regulations development to support the profession. In 1825 the bankruptcy act was established outlining how organisations bankruptcy and credit levels could be evaluated followed by the insolvency act of 1838 outlining the rightful insolvency procedure. Moreover, as a move to regulate this process, the Bankruptcy act of 1861 combined both acts into one in the UK. Moreover, other developments in this period include the recognition of auditing of financial records to assess their fairness and correctness as mandatory in 1875 as well as the emergence of the double entry accounting system. On the other hand, accounting professional developments in this period was characterized by the introduction of professional associations such as the 1873 society of accountants in Edinburg establishment (Mathews, & Perera, 1996). The second accounting evolution stage also known as the normative stage was characterized by the development of relevant polices and structure to support the profession between from 1900 to 1950. Key among the historical changes in this period included the establishment of the principles of accounting in 1940. The principles establishment provided an accounting practices standardization platform. Others developed in this period included the auditing regulatory frameworks as well as procedures on cost accounting and management accounting. The final accounting history stage was between 1950s -2000 known as the specific scientific theory period and characterized by the establishment of specific regulations and procedures. The period was characterized by the establishment of internationally recognized accounting bodies such as the APB in 1955 and FASB in 1979 whose regulations are applied as accounting standards (Mann, 1994). In addition, the period was characterized with the development of accounting code of ethics governing the specific functioning and activities of the profession members globally. Finally the FASB and IASB in the early2000 management to popularise and expand the IFRS standard accounting regulation with a total 120 nations applying the regulations by the year 2000. Social Construction in Accounting A socially constructed profession is one whose development evolution and growth is based on the aspects of societal changes. In this regard, a socially constructed profession on one develops in relation to society changes as a move to cater for the society needs. These attributes are evidenced in the accounting history. On one hand, the early 1800 period was characterized with increased industrial development and growth with the profession adapting to enhance efficiency in the respective organisations management. During this period, as Hills (1995) evidenced the industrial revolution was expanding with increased capital needs and the relevance to pool together resources and thus leading to expanded industries requiring better management approaches, such as proper internal control systems that were availed by accounting through regulations on business management structure such as companies and partnerships. Consequently, as a social response to changing needs, the profession emerged with the development of new accounting practices such as the management and cost accounting concepts all based on the need to provide the emerging organisations with proper and internal management and control tools. On the other hand, the 1900 period was characterized by the emergence of technology changes. In this period, the society was inclined to increased efficiency in the management of resources. Therefore, the society was in need for better efficiency based management systems. As a socially constructed profession, the accounting profession developed new management evaluation systems aimed at developing and emphasizing on the management evaluation function (Riahi-Belkaoui, 1996). Among the developed practices in the period included the standardization of financial reporting systems to allow for verification and scrutiny. Moreover, an additional evaluation tool was established through the strengthening of the auditing function in the organisations. As such, the accounting function development affirms that it is socially constructed. Accounting as a profession and with its current operations in the society has a wide range of social orientations that evidence that indeed the profession is a social construct. On one hand is the accounting information needs. Under the financial analysis objectives in the market, the accounting function aims at developing relevant information for various market stakeholders. Boczko (2007) stated that such development information is applied internally by organizational internal stakeholders and even externally by the external stakeholders such as the consumer, regulators and investors. Therefore, basing on this argument, it is apparent that accounting plays a crucial role in enhancing society relationships between organizational internal and external stakeholders thus establishing its overall social construction aspects. In addition, the accounting function can be evidenced as a social construct due to its operational values and code of ethics. In this case, among other critical code of ethic issues in the accounting function are the values of transparency, integrity and accountability. In this regard, the code of conduct developed for the profession practitioners establishes that the professional regulators based their code of conduct development on the existing social and society acceptable values. The attributes of integrity, transparency and accountability serve as the key guiding personal and individuals principles of reputation in the society. Thus, this is further evidence and indication that indeed the accounting profession is a social construct based product (Brooks & Dunn, 2010). In addition, an evaluation of the accounting profession history as already discussed above in this analysis establishes that key among the accounting functions and branches emerged as a response to societal social needs for increased control and efficiency thus serving as a social constraint. Personal Reflection Of all the listed perceptive for the evidencing that accounting is both a social construct as well as social constructing, the objectives of accounting functions serves as the most compelling perspective to me. This is based on a number of factual reasons. On one hand, the developed analysis serve as a critical evaluation tool by internal management operations by organizational leaders. In this case, the established accounting analysis serve a crucial role of developing efficient and performing leaders through regular performance evaluations. As such, the results enable the leaders establish the key weakness areas as well as strength areas for improvement and perfection in their activities to the society (Gupta, 2009). On the other hand, the established accounting findings in organisations develop the relationships between the organization and their clients and shareholders. As such, the findings and analysis influence the perception and type as well as extent of relationships between the external stakeholders and the organizational managements. Therefore, this evidences that the key role and objective of the development, evolution and growth of the accounting function was to create rationality and basis for the development of relationships between different society stakeholders. Conclusion In summary, this essay develops a critical evaluation of the accounting field of study evolution. In this case, it establishes that the profession is a social construct in that s evolution was based on fulfilling the basic society social needs in management. Among the listed social development included cost accounting, auditing and practices standardisation to promote management efficiency. References Albrecht, W. S. (2007). Accounting, concepts & applications. Mason, Ohio: Thomson/South-Western. Banerjee, B. (2006). Cost accounting: Theory and practice. New Delhi: PHI Learning Private Limited Boczko, T. (2007). Corporate accounting information systems. Harlow: Financial Times Prentice Hall. Brooks, L. J., & Dunn, P. (2010). Business & professional ethics for directors, executives, & accountants. Mason, OH: South Western Cengage Learning. Gupta, A. (2009). Financial accounting for management: An analytical perspective. Delhi, India: Dorling Kindersley (India) Pvt. Hills, S. M. (1995). Employment relations and the social sciences. Columbia, S.C: University of South Carolina Press. Riahi-Belkaoui, A. (1996). Accounting, a multiparadigmatic science. Westport, Conn: Quorum. Stadler, F. (2004). Induction and deduction in the sciences. Dordrecht: Kluwer Acad. Publishers. Mathews, M. R., & Perera, M. H. B. (1996). The philosophy of science and research methodology. In Accounting theory and development (3rd ed.) (pp. 38-50). Melbourne: Thomas Nelson. Mann, G. (1994). The origins of double-entry. Australian Accountant, July, 17-21. Read More