Describe about accounting approaches and constituents. What is positive accounting theory.
Miller and Reading (1986, p. 64) highlights that in case the support of a community is critical before specific accounting approaches become personified in accounting standards. Nevertheless, this argument stimulates the questions of whether Miller and Reading’s argument trigger any implications for the ‘neutrality’ as well as the ‘representational faithfulness’ of reports produced in accordance with accounting standards. These two phrases can be simplified as the qualitative features that exist in innumerable conceptual framework projects globally. Another issue addressed in this paper relates to the heated debated about the mere discovery of a problem in an organization.[1] In my view, I am in agreement with the state which posits that a mere identification of a problem is insufficient to assure that the Financial Accounting Standards Board will assume its solution. The Board’s attempt to get the solutions to such a problem faces such constraints as the existence of a suitably high probability that the Board can resolve the issues in a way that will be satisfactory to the constituency. Accordingly, in the absence of advance sense of the probability that members of the Board members will arrive at a consensus, it remains is generally unadvisable to assume a formal project.[2] The underlying factor here is that the board has to be sure of that there is a likelihood of consensus. In case, there is no prior likelihood of this consensus, any assumption by the Board to proceed and implement any project will be risky. Where the Board bypasses the contribution of the community, it means that there will be a high level of resistance on the ground thereby making the project implementation unattainable. It is also evident that Miller and Reading (1986) triggers an implication for ‘neutrality’ and ‘representational faithfulness’ of the reports created in compliance with the accounting standards. In other words, the practice must be founded on the inputs of the community since where the community support is critical to any adoption of accounting approach; it goes without a doubt that their concerns are part of the accounting standards. It means that any particular accounting approach should be within the confinement of the community concerns to trigger acceptance.[3] Doing anything contrary to the agreed upon would mean that the support or the contribution of the community is neglected, and this can be disastrous during the implementation of any project. The community anticipates nothing short of the representation of their views in the accounting practice since they are key stakeholders in the development of any accounting standard. Therefore, where a practitioner embraces an approach is not founded within the community viewpoint, the community tends to develop a negative attitude and rejects the same. However, this might be costly to the firm in case the approach had been used long before it became known to the community. The best practice, therefore, is to recognize and appreciate the place of the community in the formulation of accounting standards and the subsequent implementation of the accounting approaches purely within the confinement of the agreed upon standards. A mere identification of the problem is, therefore, apparently insufficient to assure that the Financial Accounting Standards Board will assume its solution. The decisions of the Board are limited to the approval by the constituent. Indeed, in cases where the Board may in its own wisdom decide to surpass the contribution of the constituent, war always ensues.[4] This means that even in cases that a problem is clearly identified, the Board has to start by explaining it to the community or the constituents to give their consent. The implication of this challenge is that the road to getting a solution to the discovered problem does not lie purely with Board, but the constituents. It is, therefore, my view that a harmonious working relationship between the Board and the constituent needs to be embraced through the inclusion of the community at every level of the Board’s problem identification to minimize change resistance. It is argued that where the process of identifying the problems is inclusive of the constituents, they will be able to comprehensively acknowledge the impacts of such problems and appreciate the need for its urgent solution.[5] The consent by the constituent means that projects will not be rejected since their consent will always be preceding the implementation of any project. However, where a contrary is done, there will be a conflict between the Board and the constituents which always leads to a win-loss situation for the constituent. The Board, therefore, needs to remain privy to the position that the constituents play in coming up with the accounting standards and the implementation of any particular accounting approach. In fact, it is appropriate for the Board always to remain proactive in its undertaking to avoid leaving the constituents behind in its intended undertaking. It should work in handy with the constituents by soliciting the views of the community and frequently coming back to the constituents and giving a blow by blow accounts of how their views have are being incorporated into the practice.[6] This method will ensure that the constituent becomes closer to the problem identification stage and understands the underlying factors behind the problems and the possible interventions proposed by the Board. Indeed, this will ensure that the views of the constituents are considered at the earliest time possible such that the policy generated will reflect these views making the practice or the approach familiar to the constituents.[7] The stage by stage incorporation and the inclusion of the constituents increases the ability of the Board to predict the likelihood that the constituents will approve the decision made. This way, the Board will be more efficient in making the decisions on whether to continue with the project or cancel to avoid the huge losses it is eventually rejected by the constituents. Thus, it is my view that in the absence of an advance sense of the probability that members of the Board will arrive at a consensus, it inadvisable to assume a formal project.
I am in total agreement that that Positive Accounting Theory (PAT) represents an ‘abrogation’ of the academics’ duty to serve the community that supports them. The criticisms against PAT are reasonable and justified in my view. The focus of my argument is that Positive Accounting Theory does not provide a prescription of the method of accounting to be embraced by the firm. The failure to provide the prescription is a leeway for the alienation of the academic accountants from their colleagues within the profession. An abrogation of academics’ duty to serve the community that supports them is manifested by the unwillingness to tackle policy issues by the PAT accountants.[8] Alongside other activities, the PAT practitioners are more oriented to a day-to-day basis with the question of which particular accounting policies they should embrace. Academics have in the past acted as commentators and reformers on these normative matters. By focusing much on positive questions, it is apparent that academics are at high risks of neglecting one of their critical roles in the community. PAT is also sensitive with the prediction of actions such as the choices of the policies by firms and how firms will react to the proposed emerging accounting standards, but it is quite silent on which particular methods of accounting should be adopted by the firm. As indicated by Watts and Zimmerman (1986, p. 7) PAT main concerned is to explicate the accounting practice. It is purely designed to explicate and predict which companies will either use or not use a certain accounting method, however, PAT says nothing regarding which method a company should implement. This is a clear representation of an abrogation of the academics’ duty to serve the community which offers immense support to these academicians. It is apparent to me that PAT does not meet the eventual goal of helping these firms to choose a given accounting method. In this regard, PAT fails to perform what is required and, only tends to leave many firms in dilemmatic situations. By purely focusing on the positive side of the practice, the PAT practionares will tend to abrogate their duty to serve the community that gives them massive support. It is required that an individual looks at both sides of the coin to discover both pros and cons. A valid decision only results when either pros or cons overweigh the other.[9] However, the Positive Accountant Theory seems to leave the work unfinished by only highlighting the positive side of a particular accounting method but suddenly leaves at the discretion of the firm to choose the method it requires. A wrong choice of the method of accounting for a given firm will water down the efforts of the PAT in its bid to illustrate the method to be chosen. It could have been more appropriate that PAT moves a notch higher to help a given firm to select accounting method which is relevant to it since not all the methods of accounting will prove relevant to every firm. In this case, it is clearly that PAT shifts the burden of choosing the particular method of accounting to be used by the firm, rather than take the full responsibility to suggest the best method a given firm should embrace. This is a clear abrogation of duty to serve the community that supports these academicians.[10] A community is a given left struggling to wander through the methods of accounting to get any that may serve them best yet they have supported the academics who understands these methods and can easily and appropriate make good choices for them. The failure of the Positive Accounting Theory to give prescription makes it abrogative since another entity has to take up the role that the academics ought to have played to see its completion. In this case, PAT fails to provide a mechanism for improving the accounting practice. It is a value-laden rather than being a value-free and the underlying issues that PAT address have not displayed in significant development. In this case, PAT tends to abrogate the duty to serve the community since it solely explicates as well as give a prediction on what the firm might undertake, thereby neglecting the altogether on what they should undertake. PAT stimulates the abrogation of the duty to serve the community in that it totally fails to state what is required to occur, instead the theory describes as well as predict what needs to happen which remains inefficient.[11] To this end, PAT does not meet its main goal of predicting what should happen since the prediction is left hanging as firms are not given a clear roadmap on how to achieve these predictions.[12] The Positive Accounting Theory, therefore, complicates the practice since firms are only given insufficient prediction based, but they have nothing given to achieve these desired outcomes. It would have been appropriate PAT could have explain to the firms, the necessary steps required to achieve the prediction by prescribing the strategies that if implemented will see the firm accomplish these goals. However, PAT is found in a contradictory situation where on one end it highlights the destination, but fails to outline the paths followed or techniques required to hit such a destination. In fact, PAT abrogates a greater proportion of its duty to the firms since it is hard to achieve a given goal set out by another without understanding the nitty gritty about the problem. The Positive Accounting Theory tends to hoard a lot of information to the firms by merely highlighting the needs to happen without accompanying it with the road towards its accomplishment. It is, therefore, in my view, that PAT’s practitioners purely abrogate the duty to serve the community which supports them.
Escaffre, Lionel, and Olivier Ramond. “Toward an understanding of the IAS 39 derecognition principles: An application to the factoring transactions’ reporting.” In EUFIN Workshop on Accounting in Europe. 2007.
Gaffikin, Michael. “Accounting research and theory: the age of neo-empiricism.” Australasian Accounting Business & Finance Journal 1, no. 1 (2007): 1.
Gaffikin, Michael. “The critique of accounting theory.” Faculty of Commerce-Accounting & Finance Working Papers (2006): 41.
Hornby, D. Brock. “Delegating Authority to the Community of Scholars.” Duke Law Journal 1975, no. 2 (2010): 279-327.
Humphrey, Christopher, and Peter Miller. “Rethinking impact and redefining responsibility: The parameters and coordinates of accounting and public management reforms.” Accounting, Auditing & Accountability Journal 25, no. 2 (2012): 295-327.
Kabir, Humayun. “Positive accounting theory and science.” Journal of Centrum Cathedra 3, no. 2 (2010): 136-149.
Lynde, Russell DuBeau. “The ethics of criticism: J. Hillis Miller and the metaphysics of reading.” (2012).
Qiong, He, and Du Jianjun. “Research on Critical Issues in Contemporary Accounting.” In Proceedings of the 7th International Conference on Innovation & Management. 2011.
Watts, R. L., & Zimmerman, J. L. “Towards a positive theory of the determination of accounting standards. Accounting review, (1978):112-134.
Watts, Ross L., and Jerold L. Zimmerman. “Positive accounting theory: a ten year perspective.” Accounting review (1990): 131-156.
Watts, Ross L., and Jerold L. Zimmerman. “Positive accounting theory.” (1986).
Whittington, Geoffrey. “Fair value and the IASB/FASB conceptual framework project: an alternative view.” In Accounting and Regulation, pp. 229-268. Springer New York, 2014.
[1] Escaffre, Lionel, and Olivier Ramond. (“Toward an understanding of the IAS 39 derecognition principles: An application to the factoring transactions’ reporting.” In EUFIN Workshop on Accounting in Europe. 2007).pp. 67
[2] Gaffikin, Michael. (“The critique of accounting theory.” Faculty of Commerce-Accounting & Finance Working Papers (2006): 41).pp.34
[3] Qiong, He, and Du Jianjun. (“Research on Critical Issues in Contemporary Accounting.” In Proceedings of the 7th International Conference on Innovation & Management. 2011).pp. 57
[4] Watts, Ross L., and Jerold L. (Zimmerman. “Positive accounting theory.” (1986).pp. 54
[5] Lynde, Russell DuBeau. (“The ethics of criticism: J. Hillis Miller and the metaphysics of reading.” (2012).pp.65
[6] Kabir, Humayun. (“Positive accounting theory and science.” Journal of Centrum Cathedra 3, no. 2 (2010): 136-149).pp. 140
[7] Watts, R. L., & Zimmerman, J. L. (“Towards a positive theory of the determination of accounting standards”. Accounting review, 112-134. 1978).pp.120
[8] Hornby, D. Brock. (“Delegating Authority to the Community of Scholars.” Duke Law Journal 1975, no. 2 (2010): 279-327).pp. 315
[9] Humphrey, Christopher, and Peter Miller. “Rethinking impact and redefining responsibility: (The parameters and coordinates of accounting and public management reforms.” Accounting, Auditing & Accountability Journal 25, no. 2 (2012): 295-327).pp.300
[10] Gaffikin, Michael. (“Accounting research and theory: the age of neo-empiricism.” Australasian Accounting Business & Finance Journal 1, no. 1 (2007): 1).pp.56
[11] Watts, Ross L., and Jerold L. Zimmerman. (“Positive accounting theory: a ten year perspective.” Accounting review (1990): 131-156).pp.52
[12] Whittington, Geoffrey. (“Fair value and the IASB/FASB conceptual framework project: an alternative view.” In Accounting and Regulation, pp. 229-268. Springer New York, 2014).pp.240
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