Accounting Theory, it may sound way easier to score than those subjects that I have previously struggled. However, it proves me wrong in fact that it's far more complicated than what normally students have expected. It's different from Introductory Accounting whereby we learn basics such as accounting overview, debiting and crediting the accounts, preparing the Financial Statements based on the fundamental standards and required frameworks... The aim of this subject is to examine a various theories have been put forward to understand the role of financial accounting in decision-making, explain why and how entities make decisions, emphasize on application of contemporary financial accounting practice. Students are required to be able to form logical arguments and judgments based on contemporary theory. Well, it really requires a lot of reading and understanding, either from texts or world news in order to form a professional judgment.
Our lovely and always wear a smiling face lecturer, Ms. Ting; We will never get bored in her class as she will always tells us various of interesting examples from our surroundings blended into the logical understanding of the respected subject.
What is Theory?
"A coherent set of hypothetical, conceptual and pragmatic principles forming the general framework of reference for a field of inquiry" (Hendriksen 1970, P.1) It is a set of broad principles or postulates which are supported by undertaking numerous observations and tests against the actual phenomena, to provide an appropriate guidance towards the question. Essentially, the Scientific theory is distinguished from Accounting theory in a sense of its rigidness and rigorousness.
However, Accounting theory considers human behaviour from activities, experiences accumulated and is subject to change. For instance, the revolution of money; Clearly we know that money is a mean of the exchange from trades. But if we flashback to donkey-monkey years ago during the existence of barter systems, salt at that time was very valuable, as the mean of trade. Then money is created to standardize and improve the efficiencies in trading. Other than that, we can't say that the theories developed are absolutely correct or wrong considering the continuous changing of environments and human behaviours. It's up to the perceptions which people may choose to accept or reject the theories that have been proposed by different researchers from time to time. Accounting students have to blame the great Father of Accounting =>LUCA PACIOLI
http://www.answers.com/Luca+Pacioli+?gwp=12&method=2He was the one who invented the double-entry bookeeping. =P (Angelia is evil) Well, to be more rational, thanks to him that lead the world towards Globalisation. (omg @_@, reading too much on Business Review Mag)
Another question being proposed before the end of the class, Ms. Ting asked: "If you are an accountant, ceteris paribus and given that the company is earning a profit, other external factors are constant, which valuation of assets measurement are you going to adopt for logical reasoning and testifying against the more appropriate assumptions?" Well, we have Straight Line Method and Reducing Balance Method to depreciate the assets of the company. Normally accountants will choose SLM so as to generate more bonuses due to the overstatement of profits earned. Why this assumption is more appropriate? The reason is based on "Rational Economic Person Assumption": individuals seek to advantage themselves and tied to wealth maximisation, self-interest. Others like managers, they interpret their authority to their advantage "Opportunistic Behaviour".
If one chooses RBL, it is also nothing wrong, it can be said that that person is more towards conservationism and prudence. If RBM is adopted, it depreciates the assets to its fair value accordingly. Therefore it actually will understate the company's profit and eventually will get less bonus. n_n" Very interesting areas to reasoning.
The harder you are to be tackled (Accounting Theory), the easier I fall for you, I have started to love Accounting Theory.
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