Contemporary issues - Topics 5 - 9 Flashcards
(14 cards)
What is positive accounting theory?
A theory that seeks to explain and predict particular phenomena
What is normative theory?
A theory that prescribes how a particular practice should be undertaken
What does positive accounting theory focus on?
Relationships between various individuals and explains how accounting is used to assist in the functioning of these relationships.
What are the 3 key accounting policy choice hypothesis?
Bonus plan
Debt
Political cost
What is Bonus plan hypothesis?
The bonus plan hypothesis is that managers of firms with bonus plans [tied to reported income] are more likely to use accounting methods that increase current period reported income.
What is Debt hypothesis?
Developed from Positive Accounting Theory, it proposes that organisations close to breaching accounting-based debt covenants will select accounting methods that lead to an increase in profits and assets.
What is Political cost hypothesis?
Developed from Positive Accounting Theory, it proposes that firms subject to political scrutiny will adopt accounting methods that reduce reported income.
What is unregulated decision making?
Where an entity may provide additional voluntary disclosures .
What are 3 key systems theories?
Legitimacy theory
Stakeholder theory
Institutional theory
What is legitimacy theory?
A theory that proposes that organisations need to operate within the bounds and norms of their respective societies. Compliance with societal norms and expectations is assigned the status of ‘legitimacy’. If ‘legitimacy’ is not apparent then managers will embrace the process of legitimation.
What is stakeholder theory?
Has both an ethical and managerial branch and is effectively an umbrella term representing a number of alternative theories that address various issues associated with an organisation’s relationship with its stakeholders.
What is institutional theory?
A theory that explains how various practices, processes and organisational forms become similar or ‘institutionalised’ within society. Explains that organisations within particular ‘institutional environments’ will become similar because of various coercive, normative and mimetic pressures. This process of becoming similar is referred to as isomorphism. The theory also predicts that there will be a decoupling of formal (seen) structures or forms and actual structures or forms.
What are the stakeholder theory branches?
Normative - ethical (fairness, benefits, social interests)
Positive - managerial (organisational needs, managed interests)
What are the natures of isomorphism?
Coercive - organisational alignment with dominant rules in order to survive
Normative - aligns with group norms and values in order to survive
Mimetic - imitates their successful peers in order to survive
