Normative Theory
About what ought to be done, what should we do
NT basically cover 2 different things:
1. True income theory
- A single measure for assets it has to be true, accurate, precisely correct
- A unique and correct profit figure don’t mark around
2. Enhancing the decision-usefulness
- Basic objective of accounting is to aid the decision making process of certain
users of accounting reports by providing useful accounting data.
- Enhancing the true decision usefulness for others to make decision
Decision process:
Accounting system of company x prediction model of user decision model of user
Positive Theory
Expanded during the 1970s, when researchers in FAMA found that in USA, a huge data is
available in capital market.
The data needs to be developed: PAT
1. Based on ‘experiences’ or ‘facts’ of the real world
2. Explain the reasons for current practices
3. Predict the role of accounting information in decision making
Scientific Approach
Proven, but:
- It has an inherent assumption that the world to be researched is an objective reality
- Is carried out by incremental hypotheses
- Has an implied assumption (which has to precise, perfect) that a good theory holds
under circumstances that are constant across firms, industries, and time <- further
explanation of the abstraction of reality
Criticism:
- Large-scale statistical research tends to lump everything together
- It is conducted in environments that are often remote from the world of or the
concerns of accountants
Misconceptions of purpose:
- Make scientists out of accounting practitioners
- Researchers = practitioners
- The desire for ‘absolute truth’
Naturalistic Approach
Implies that there are no preconceived (pertimbangan sebelumnya) assumptions or theories
Focuses on firm-specific real world problems (about one company contoh: share prices
for cocacola are affected by announcements made by cocacola)
Firm specific: Increase in ANZ increase in all commonwealth bank; karena bank itu highly
regulated sehingga satu industry bisa kepengaruh vs Marketwide movements: donald trump
collapse, interest rate, forex rate, trade war.