Its a general perception by accounting professionals, that there is a solution to every accounting

problem. Its like living in a denial, but actually there are many issues that remain unresolved after

having the knowledge of mere accounting. Salim gets admission in a college and advised by his

close friends to take a major in accounting. Accounting will help Salim to acquire knowledge about

the laws that govern business, the ethics of accountancy, statistics, and accounting theory. He will

learn how to prepare the key documents that his job will involve, including business proposals,

financial statements and tax returns.

Like accounting, accounting theory also provides a basis for prediction and explanation of

accounting behaviors and events. It guides the development of new practices and procedures and

help to understand current development in accounting practice. The accounting theory also

provides the knowledge of Generally Accepted Accounting Principles, Contemporary issues and

other developments in the field. Salim, being an accounting student is well aware about all the

latest developments according to the particular guidelines.

a. In your opinion, why Salim should focus on understanding the problems of accounting practices

and profession. Why is there a need of construction of accounting theory? Explain your answer.

b. Accounting theory serves as a frame of reference which is used to judge a particular technique

of accounting. As per your understanding, explain how frame of reference would be structured in

accounting theory?