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CHAPTER 1 INTRODUCTION
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Pragmatic accounting
(1800 1955)
The general scientific period
based on empirical observation of practice provided an explanation of accounting practice focused on the existing viewpoint of accounting
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Normative accounting
(1956-1970)
Sought to establish norms for the best accounting practice Focused on what should be (the ideal) v. what is
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Normative accounting
(1956-1970)
Degenerated into battles between competing viewpoints Two groups dominated:
conceptual framework proponents critics of historical cost
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Normative accounting
(1956-1970)
Factors prompting the demise of the normative period include:
the unlikelihood of one particular normative theory being generally accepted the application of financial economic principles the availability of empirical data and new testing methods
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Normative accounting
(1956-1970)
The major criticisms of normative theories were:
they do not necessarily involve empirical hypothesis testing they are based on value judgements
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Recent developments
Academic and professional developments in accounting theory have tended to take different approaches Academic research focuses on capital markets, agency theory and behavioural aspects The profession has sought a more normative approach what accounting practices should be
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Recent developments
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Recent developments
Conceptual framework resurrected in 1980s
states the nature and purpose of financial reporting Establishes criteria for deciding between alternative accounting practices SACs 14
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Recent developments
Conceptual framework Recent Developments
Joint project between IASB & FASB International harmonisation of accounting practices through a single consistent set of international financial reporting standards (IFRS)
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Recent developments
The conceptual framework underpinning the IFRS favours a move toward
accounting practices that provide information for enhancing decision making by investors and others recognising all gains and losses in the accounting periods in which they occur measurement using exit values
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Content outline
Part 1: Accounting theory (chapters 1 3) Part 2: Theory contributing to practice (chapters 4 10) Part 3: Accounting and research (chapters 11 14)
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Summary
Accounting theory Major periods of accounting theory development Normative accounting Positive accounting Conceptual framework IFRS
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