Accounting Perspectives

Introduction

All businesses must have  to record, analyse and report internally and externally to users in financial form legally and to be useful to users to make informed decsions. In addition, all businesses and other entities have to measure the transaction in monetary form. All professions have sound theorerical basis to make policy decsions. This is also applicable to accounting if accounting to be recognized as a profession by the public and by the government authorities and others. In his sense Accounting theory development is a recent consideration by accounting bodies all over the world and to have consistentcy of theory and coherence to make the accounting to be more objective as far as possible.

There are many accounting perspectives and they differe from country to country depending on economic, legal, social, historical and cultural factors. However, there are common acceptable prespectives in accounting as some pronciples are recognized important irrespective of the socio-economic enviornment. This does not mean there is homogenity in accounting theory and practiice in all  parts of the world. In this article, i will discuss the theoretical and practical issues of accounting and how they approach the measurement, form and desing of accounting reports and how accounting  theory afffects the practice of accounting and how practice review the theory with imerging accounting prblems and issues. Accounting is not recording financial transactions, it is more than recoding of of activity in financial form and it has to address more broader issues than mere recording of financial transactions alone. This article will highlight the accounting theory perspectives and Theory development and how it is important for accounting as a profession to address theoritical and practical isses of accounting in a coherent manner and why theory in accounting is difficult in practice due to many practical constraints in the real world.

Why Accounting Theory?

Accounting theory is important because it enables to evaluate practice in accounting against the logic of broad well establised coherant set of theoretical norms. As well all theories have hypothessies and derived frob observations and logical coherance they are useful to develop new knowledge to solve imergin accounting isses. That is theories are necessary to create new knowlege just in any field of study. The purpose of theories are to describe what is all about accounting, explain why something happens or not happen and the underlying causes as well, to predict what the effect of accounting information on users of information and on the general market. Above all, Theories are necessary to define the nature, scope, and limits of financial accounting and to develop standards based on interrelated objectives and coherant logical and systematic manner rather than on an ad hoc basis whcih gives consistency in accounting rules techniques to be observed by all practicing accountants and set ethical standards of behaviour and code of ethics.

Types of accounting theory prepectives

Accounting theories can be postivisitic or normative. Postivisitc theory means the accounting theories are based on observation and based on specific scientific approach. The postivist theory basically is about the study of capital markets, contracting theory and studies in behavioral of users, decsion makers and preparrers in responsce to changes in accounting methods and practices and their reactions. Normative theories are based not on observations but on the models used by by the researcher what is effective accounting theory based on the model. The normative theories are prescriptive by nature and tries to regualte and standadize accounting postulates, accounting theoretical concepts, principles and accounting technique for given accounting issue or a group of accounting problem. For example the current cost accounting as an alternative accounting to be prepared when inflation is an issue isa normative accounting theory prespective and prescriptive by nature. So it is obvious from the above discussion, how the theoreies or accounting theories are developed will affect the accounting methods used by the practcing accountants and it may differ from one period to the next depending on the way or the accounting thery development methods used by the accunting community and bodies.

Mostly in accounting the the theries evolve over a period of time in a pragmatic manner, and it gave birth to GAAP or generally Acccepted accounting practice. These developments are ad hoc in nature and piece meal and have given inconsistent accounting practices and permisiveness of diverse accounting methds for a particular accounting issue and not systematically develop standards to new and different issues in a coherant manner.. it also gave birth to creative accounting.

Accounting Postulates, Theoritical concepts, Acoounitng principles and accounting techniques

Accounting Postulates

Accounting postulates are assumptions and basic axioms of accounting normally derived from pragmatic accounting in real life and assumed to become as accepted norms. These accounting postulates are inferences from economic and political enviornment which cannot be verified. The basic accounting postulates are as follows:

Entity Postulate - This means the business entity  and its relation to ownership. Normally it assumed that entity is separate from ownership.

Going Concern Postulate - This means the business or any organization has a possibility to exist in the future and it do not normally go down or become liquidated.

Unit of measure postulate - This means that financiaransaction can be recorded in monetary units and must be recorded in monetary unit. The unit of measurement is in local curency units.

Accounting period postualte - This means that most business has a fianacial year and they also produce interim financial reports at frequent intervals.

Accounitng theoritical concepts

The Accounting theoritical concepts are derived from the definaition of objectives of accounting and the nature of accounting in specific situations and related to the postulates. These accounting theritical concepts are as follows:

Proprietory theory - This refers to the theory concept that ownership and entity are the same and assets - Liability = owners equity.In this theory Income or revenue is more important than balance sheet.

Entity theory - This refers to the theoritical concept that the ownnership and business entity is separate. In this instance total assets = equity + Liabilities. In this therorical concept balance sheet is more important than revenue statements.

Fund Theory - This refers to non-profit organizations and government entities, where assets are identified with particular project or asset.

Accounting principles are derived from the postulates and accounting theoritical concepts. They are as follows;

Revenue recognition - Revenue is recognized when goods are sold and services are rendered in a particualr period not cah received. That is revenue is recognized in accrual concept.

Cost - This refers to the cost of the sold goods and services.

Mathching - The cost be recognized as expences related to the revenuw in the income statement.

Consistency - A partilar item of income or expenditire must be accounted fror and measured in a consistent manner in the same period and in others.

Uniformity and comparability - The financual reports must be uniform in format and content over adifferent periods and it must be compareable with previous years and in teh future. In addition it must be comparable with similar entitities.

Full disclosure - All estimates, accounting policies and other legal and important financial information must be fully disclosed in the financial report or as a note.

Conservatism - They must not exaggirate revenue or balance sheet items and and appropriately adjust values and provide for known risks which can be reasonably estimnated like bad debts, depreciation and amotization in the financial reports.

Materailaity - All unexpected gains and lolosses must be shown separately or shown as a note to financial reports.

Accuracy - the fiqures in the repost must not have excessive errors as well they must not be baised

Relevance - The financial reports must be relevant to the users. That is the reports must be prepared as soon as possible in real time not too late.

Objectivity - The fiqures of the fianacial statement must as far as possible avoid judgements and arbitary methods applied to measure financial transactions.