Using the tools of critical analysis to identify and evaluate the contributions of Positive Accounting Theory
INTRODUCTION This report will focus on identifying the overall contribution of Positive Accounting Theory (PAT) to accounting as a profession and a science. This report will critically evaluate the all assumptions and results of PAT contributions to science. Secondly PAT has in its basis in an economic view of the world Evaluate assumptions. ... POSITIVE ACCOUNTING THEORY Positive accounting theory (PAT) developed as normative theories could not be empirically backed and were based on value judgements not capable of falsification. ... The philosophical objective of positive accounting theory is to "explain and predict" current accounting practice by searching for a set of identifiable universal principles . ... Two ontologies exist - capital market research (CMR) and agency theory. Positive accounting research has been heavily criticised, as it has shown that the choice of accounting methods often involves managers self-interest. ... More importantly, positive accounting is so broad that its basic theory contains the potential for contradictory hypotheses. ... However, other scholars believe that this is an inadequate basis for evaluating positive accounting research . POSITIVE ACCOUNTING TIJEORY CONTRIBUTIONS TO SCIENCE The fundamental flaw in this research to date has been in the assumptions underlying scientific research . ... Consider though the fact that since Joel Dean first envisaged PAT in 1951 it has not, in 47 years, been able to discover the universal principles to "explain and predict accounting practice". ... PAT has been subjected to scrutiny, for its errors in confusing financial statements with economic goods and it restricts itself to the positive study of practices and practitioners. ... There has been several ways to improve positive research in accounting choice. Firstly, by improving the linkage between the theory and empirical results. ... POSITIVE ACCOUTNING THEORY CONTRIBUTIONS TO THE PROFESSION Positive accounting Theory allows one to explain and predict the actions of the various parties to the standard-setting process, including the actions of managers, auditors, accounting policy makers, and other regulators. The better one understands those actions, the easier it will be to evaluate accounting disclosures and to improve accounting standards. Positive accounting researchers in considering economic influences solely, eliminate analysis of the human factors influencing decision making. For instance, positive accounting Research and capital market research assume that: "managers act unreservedly in their own narrowly defined economic self-interest with, if necessary, guile and deceit". ... The assumption that managers have absolute discretion in the choice of accounting policy is incorrect. ... The lack of explicit consideration in positive accounting studies of managers and their social environment leads to a failure to analyse the social factors, which influence managers accounting choices. It has been recognised for some time that the scope of accounting research should be broadened beyond traditional positivist investigations with its technical efficiency focus to include social and political phenomena.