1. introduction to acc theory and practice

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ACCOUNTING THEORY ANDPRACTICE

TOPIC 1:INTRODUCTION TO

ACCOUNTING

THEORYAfter completed this topic, you should be able to:

Define nature of theory and its accountingcontext

Identify the range of accounting theoryDescribe the development of accounting theory


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INTRODUCTION

What is Accounting?

ACCOUNTING is the SYSTEM of

identifying, classifying, recording,summarizing, analyzing & reporting of

FINANCIAL DATA & INFORMATION of

ORGANISATION in accordance with

ACCEPTED PRINCIPLES,CONCEPTS,CONVENTIONS, STANDARDS &

REGULATION


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INTRODUCTION

IDENTIFYING is to CHOOSE

FINANCIAL TRANSACTIONS from all

TRANSACTIONS.CLASSIFYING is to GROUP FINANCIAL

TRANSACTIONS into ASSETS,

LIABLITIES, EXPENSES & INCOMES.

RECORDING is to enter

TRANSACTIONS into RELEVANT

BOOKS OF ACCOUNT.


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INTRODUCTION

SUMMARISING is to TOTAL UP groups

of FINANCIAL TRANSACTIONS in a

certain TIME PERIOD.ANALYSING is to COMPARE

TRANSACTIONS vertically or

horizontally.

REPORTING is to INFORM RELEVANT

USERS of financial data relating to an

organisation.


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INTRODUCTION

What is Theory?

Theories are analytical tools for

understanding, explaining, and makingpredictions about a given subject matter

Fundamental assumptions + argument

= final conclusion Example: Maslow Theory
http://en.wikipedia.org/wiki/Analysishttp://en.wikipedia.org/wiki/Understandinghttp://en.wikipedia.org/wiki/Explanationhttp://en.wikipedia.org/wiki/Predictionhttp://en.wikipedia.org/wiki/Subject_matterhttp://en.wikipedia.org/wiki/Subject_matterhttp://en.wikipedia.org/wiki/Predictionhttp://en.wikipedia.org/wiki/Explanationhttp://en.wikipedia.org/wiki/Understandinghttp://en.wikipedia.org/wiki/Analysis


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INTRODUCTION

Theory is derived from observation of

situations/events/result of logical

reasoning Theories exist until they are replaced by

a better theory


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Why Accounting Theory?

Provide more consistent treatment

As a general framework of reference

Evaluation of the existing practices(Syed Musa Al-Habshi, 2003)

Guide development of a new practices

and procedures


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Financial world is never so simple

Accountants required to impose some

logical and quantitative order toimprecise events.

So that can disclose the financial

implication of these events or

transaction.


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Accounting theories are often developed

from different perspectives which may

lead to many interpretations ofaccounting practices.

Example: measurement issues of

whether the assets and liabilities should

be valued using historical cost or currentcost.


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The role of Accounting

Accounting as a/an:

Historical record

To record about the past eventLanguage

Numbers which can be communicated andunderstood by users

Intra corporate politics

More efficient department (able to read FS)may request more resources


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Political process

Standard setting will involve many parties

One party may influence one another

Mythology

Accounting as professional

MagicMake-up balance sheet (ENRON)


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Communication- decision information

FS to influence decision

Economic Goods

Information provider for macroeconomics,

taxation, political

Social commodityTo promote social welfare


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Ideology and Exploitation

Especially during Industrial Revolution

Use accounting information to exploitworkers and society

Social Club

Promote group interest and culture


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Accounting Development

1. introduction to acc theory and practice

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