Accounting theory may be defined as logical reasoning in the form of a set of broad principles that provide a general frame of reference by which accounting practice can be evaluated, and guide the development of new practices and procedures. Accounting theory may also be used to explain existing practices to obtain a better understanding of them. But the most important goal of accounting theory should be to provide a coherent set of logical principles that form the general frame of reference for the evaluation and development of sound accounting practices (Hendrikson, 1992).

Required: Accounting theories always seem to be tied to policies. To what extent does the quality of accounting policy and accounting practice depend on accounting theory? Describe the relationship between accounting theory, accounting policy, and accounting practice.