Custom essays on Financial Accounting Theory

The positive theory of accounting is one of the branches of the scientific study of accounting, which tries to explain and predict the current practice of accounting. It is opposed to the normative theory of accounting, which seeks to withdraw and to establish the “best” rules of the accounting. The positive accounting can be associated with the contractual view of the nature of the firm. The company in this case is regarded as a chain of contracts, and accounting is regarded as a tool for the improvement of the detention and the action of treaties. According to this point of view, the mechanisms of accounting seek to reduce costs associated with contracts, through the establishment of the expected agreement among the diverse parties. For example, the positive accounting argues that conservatism in accounting which is in this sense traditionally defined as required as weaker (more strict) rules of recognizing the evidence of the loss (profit) – has its roots in the contract markets, including the contracts of the management compensation and the debt to the lenders. As an example of the lack of conservatism it is possible to cite the agreement on the management compensation, which may reward the managers basing on the current reports, which will be unfounded by following evidence.
The treaty look at the positive theory of accounting is in conflict with the studies of the importance of cost accounting: the last cast doubt that the main purpose of accounting is to assess the company and therefore such things as conservatism, are quasi-optimal. The school of the importance of the value emphasizes the usefulness of the accounting information for the investors in the capital as opposed to the usefulness of the conventional applications.
The positive accounting theory emerged from the empirical research, which flourished in accounting in the late 1960’s. Englard (2007)

stated that it was built as a scientific school of thought in this scientific field by the work of Ross Vaughts in 1978 and Dzherold Zimmerman in 1986 at the school of business management of William E. Simon of the University of Rochester, and by the foundation of the Journal of Accounting and Economics in 1979. When they were released, these innovative articles met a considerable criticism.
Now let us pass to the second section of our research. The positive theory is a part of the economic theory, which studies and explains the observable economic facts, events, processes, establishes a link between them in contrast to the normative economic theory, which prescribes, recommends how to implement economic policies to manage the economy.
The positive theory examines the real state of the economy and how this condition may be changed as a result of certain events. The positive theory is based on the study of the cause-effect relationships and argues for the principle of “if – then”. For example, if the price of the milk is increased, people will buy it less, if the firm makes a larger profit, it can expand production and so on. Even so the positive theory does not assess all of these events in the terms of “good” or “bad” and is suitable to them impartially.
The positive analysis examines the relationships between the economic phenomena as they are, for example, the growth of prices for goods reduces the demand for them (at other conditions being equal). In this assertion there are no any normative, i.e. value judgments, but simply a statement of fact. No arguments, if it is fair or not, good or bad. Such approach to the positive analysis of the economic theory does not differ from the method of research in physics or chemistry.
The role of the positive theory in the development of accounting practices is considerable. The positive theory, without offering any valueable judgments, focuses on the processes as a result of which people get answers to four basic questions of accounting. This theory examines the effect of the accounting, the impact of certain institutions and political actions on the system of accounting. The positive science traces the connections between the facts, looking for the measurable regularities in the processes that occur.