Discussion Questions

1. What is accounting theory?

2. The main purpose of accounting theory is to prescribe accounting rules for practitioners. Discuss

3. An example of an inconsistency in accounting practice is for a company to depreciate some of its assets using the straight-line method and some using the reducing-balance method. Discuss

4. The development of a conceptual framework has solved the problem of inconsistency in the application of accounting in practice. Discuss.

5. Explain Bonus Plan Hypothesis.

6. 'The positive and normative approaches to accounting theory are not incompatible.' Explain and discuss.

7. Give a brief overview of the development of accounting theory in: the pragmatic period (1800-1955)

the normative period (1956-1970)

the positive period (1970's-2000 )

-the pre-theory period

Multiple Choices

1. The statement that best defines the term 'empirical analysis' is:

a. Reasoning from the general to specific statements

b. Testing the truth of a proposition by observing a subset of real world observations or events

c. Understanding practices, activities or behaviour based upon direct observations and/or experience

d. Actions undertaken by interested parties to influence the actions or outcomes of decisions made by others

2. Which of these is an era of accounting theory development during which the emphasis was on providing an overall framework to explain and develop accounting practice by using the empirical analysis method?

a. The general scientific period b. The pre-scientific period

c. The practical approach period d. The normative period

3. The rapid increase in demand for both management accounting and financial accounting information in the 1800s can be explained by:

a. The rapid development of technology during this time

b. The 'birth' of the corporation

c. Increasing separation of business management from ownership

d. All of the above

4. The major focus of the normative accounting theories during the period 1956 - 1970 was:

a. Refining accounting practices

b. The impact of changing prices on the value of assets and the calculation of profit

c. Providing explanations of accounting practices

d. The broader sociological implications of accounting numbers

5. The two groups that dominated the normative period of accounting theory development were:

a. The proponents of historical cost accounting and the conceptual framework proponents

b. The critics of historical cost accounting and the conceptual framework opponents

c. The proponents of historical cost accounting and the conceptual framework opponents

d. The critics of historical cost accounting and the conceptual framework proponents

6. Which of these is one of the two main factors that prompted the demise of the normative period of accounting research?

a. The availability of financial economic principles and testing methods b. Severe criticisms from positive accounting theorists

c. The resurgence of behavioural research

d. The increased popularity of a conceptual framework