Critics On Positive Accounting Theory Samples for Student

Questions: 1.Does positive accounting research contribute to the wider scientific endeavour? 2.What is required for a successful positive research program? 3.Does positive accounting research help to understand the human behaviour? 4.Is positive accounting research influencing to create complex organisational control system? Answers: Introduction Positive accounting theory deals with the prediction of actual accounting practice instead of prescribing optimal accounting standards for the business as observed in normative accounting (Grinblatt and Han, 2005). According to the author, the theory predicts the real world events by translating the prediction into accounting transactions. The academicians critically acclaim this theory for selecting the accounting policies of the firms. Moreover, this theory allows the management to react to the change in accounting standards. According to Dye and Sridhar (2008), the overall intention of PAT is to select accounting policies with details elaboration across the different sectors as the theory can recognise the consequences due to cost-benefit the theoretical foundation provides the opportunity of maximising the efficiency of accounting presentation of a firm that ensures the survival of the business in future. The author has also observed that viewpoint of this theory states to accumu late the contracts by the companies. Santos (2012) has argued that PAT is related to minimisation of the cost of the contracts in the business, which enables the organisations to enhance the efficiency in cost controlling. This situation is true for the contract cost of the business where accounting variables such as net income and financial ratios. According to this theory, the companies recognise the accounting policies to reduce the contract costs of on-going projects. Thereby, Pat provides the flexibility to the managers for selecting the accounting policies. The critical analysis of PAT states that application of this fundamentalism allows the managers to become opportunistic to effectively act for personal improvements (Malmi and Granlund, 2012). The theoretical set of behaviour states the optimal set of accounting policies to describe the middle path between accounting policies and minimisation of contract cost. According to Melis (2007), this theory has three different types of hypotheses bonus plan, debt covenant and political cost hypotheses. The predictions of PAT is organised around these three hypotheses. The first one states that managers are interested in showing higher reported earnings currently instead of in future. These people also try to shoe the future earnings as the current one to increase their bonuses. It also allows them to enhance the performance of the company on a current basis. The second hypothesis states that the management tries to report current earning higher or try to shift future earnings in the current report because of enhancing borrowing capacity of the business. According to Kothari et al. (2010), an increase of current earnings reduces the violation of debt covenant as well as managers can run the business without any constraint of funds. The third hypothesis states that higher political cost is a risk to the management. Hence, the management tries to defer the current income towards future to eliminate the political cost as well as new taxes (Wolk et al. 2008). In practice, management obtains PAT through five different activities. Not all of the activities are legitimate as some of them are the fraudulent practice of accounting. However, there are some procedures, which are legitimate to achieve PAT in business practice. The managers can adopt appropriate accounting policies to reduce current profitability. The business must show as much as contract income, which can be realised in future as revenue to defer the current revenue. This is an activity related to managing accruals of the balance sheet. Moreover, the mangers must adopt the new accounting policies and standards at the right moment to enhance the current profitability. The real variables of accounting must be changed in order to obtain the low profitability as well as higher accrual of income in future (Ahmed and Duellman, 2007). Further, the management can form special purpose vehicle by creating offshore accounts or capitalise the operating expenses to show healthy balance sheet of the business. The system of PAT has several flaws in practice. One of the flaws of PAT is the removal of a perfect market. According to Bertomeu and Cheynel (2013), the perfect market does not exist as regulation and political costs interfere with the perfect market. Additionally, transaction cost also reduces the perfection in the economy. Such application of PAT also reduces the acceptability of efficient market hypothesis. In this theoretical application, the EMH framework does not make any sense as the investors have invested much of the money in an ad hoc manner. Moreover, the reaction of the capital market to the accounting information is an old trick (Lopes and Rodrigues, 2013). The application PAT enhances the flaws in the agency theory as the self-interest of the management increases the fraudulent practices of accounts. However, the statement of application of agency theory suggests that in a non-political environment, if the management misuses the accounting transacti ons, then the regulations must be increased. Such situation is opposite to the conclusion of the previous statement of reducing the political interferences to reduce the PAT applications in practice (Ahrens and Chapman, 2006). Summary of article The paper on Half a Defence of Positive Accounting Research by Paul V Dunmore has discussed on the application of positive accounting theory to explain the human behaviour towards setting the accounting policies (Dunmore, 2011). The explanation of examining the qualitative data with regards to causal effect on hypotheses testing. The paper has intended to conduct the study accompanying positive accounting research to understand the cause-and-effect relationship in a scientific manner. The paper has elaborated about the deficiency of the positive accounting research. Moreover, this paper has concentrated on reviewing the intellectual projects with its ontological and epistemological assumptions. However, the review has provided serious flaws of the process of performing positive accounting studies. This paper has sought for a positivist way to detect the existence of positive accounting model as well as creating a new model. Thereby, this study has presented the approach to understand ing the world of accounts in a positive way by detecting the ineffective versions of accounting practice. The paper has explained the scientific system of a research project by elaborating the imagination of intellectual query. Further, this paper has explained the importance of hypothesis in the intellectual world with the wish of suspending the disbelief for carrying out further research. The researcher has agreed to conduct the study with a setting hypothesis with tentative questions and no conclusions. The scientific research of this context has carried out in a positivist way on economics and accounting. The paper has explored the truth about the application of positive accounting theory in practice and has provided suggestions to implement it more effectively. Moreover, this paper has provided information on past studies on positive research in accounting. However, this paper has not concentrated its material idea to Positive accounting theory as trademarked by Watts and Zimme rman since 1978. The theoretical model of these researchers mainly accounted for operational or rational self-interest among different types of organisations through implied contracts. However, these researchers have ignored value relevance literature to observe the investors decisions for accounting information mentions the price. In this context, this study has conducted the work by adopting the assumption that investors act rationally instead of games. This concept is supported by the study of Fukuyama (1995), stating that rational and self-interested behaviour of investors is correct about 8% of the entire decision-making. Therefore, in the quantitative frame, this value cannot defend the theory while it supports the sense regarding human behaviours are rational mainly carrying important exceptions. The study has sought for interpretative research as detecting the scientific ontology and epistemology. The justification of applying interpretive research is due to elaborating the experiences as well as ascribed meaning of actions in lives. The study has concluded in setting the methodology that positive ontology and epistemology are not correct. However, this process of carrying out the study is not illogic. The imperfect world of actions and results can infer the causal relationship as well as the effect of the same in practice. Hence, the result might not be well obtaining from the study but it allows a researcher to conduct the case in hit and trial method. The paper has set the hypotheses by using the Poppers criterion of testing the hypothesis with positivist way instead of an inductive method. The justification of applying positivism in accounting theory is described too by elaborating this criterion. The study has applied the qualitative positivist method to gather information for testing the hypothesis of the study. The paper has explained the weaknesses of statistical hypotheses testing in general to eliminate the option of carrying out the study w ith positivist quantitative way. Thus, the research methodology section has clearly explained the justification of selecting the qualitative positivist way for conducting the study. The hypothesis testing fails to grab the logic of the study due to technical issues. Moreover, the research has explained the flaw of statistical hypothesis testing as it considers the only one alternative hypothesis. According to the author, this alternative hypothesis is constructed carelessly as well as does not specify the region of action sufficiently. Theoretical framework The theoretical framework of this study is based on several constructs such as stringently testing by using a vulnerable model, analytical model, focussing on measurement rather testing and replicating of previous studies. The first approach has provided the opportunity to gain most of the Popperian approach from the theoretical models. The paper has explained the requirement of theoretical models in testing the hypothesis. Moreover, the researcher has explained the necessary of coinciding the concept of vulnerability of theoretical model while creating new models for testing the research hypothesis. The analytical modelling approach has undertaken by several researchers to build the model as well as test the same in the studies. However, this paper has explained the limitations of doing so in accounting studies. The analytical modelling is difficult for the empirical researcher as theorist has not contributed many details. However, an analytical model is important for developing the theories in future for testing the deficiencies. The quantitative studies conduct a measurement for reproducing the results as well as presenting the same in a precise manner. However, accounting studies do not concern this issue in practice. The technique of measurement requires an initial theory to identify the worth of the concepts to measure. The last framework is replication as the motives of the researcher would be determining the error in the original result and exploring the limits of applicability of previous findings. Significance and limitations of the article The survey of this study has revealed the gap between practised way of positive accounting research and the way it should be practised in future. The result concludes that for and not optimised system, two typical responses are present modification of system and may consider the purpose is a failed conception. The research concludes that Kuhn (Kuhn, 1970) has provided relevant insights. However, this paper has also stated that Kuhn has not provided details of the positivist way. However, he has not explained the research style in a realist way. Kuhn did not accept the hypotheses of the scientific program and according to him, the scientific programs are not feasible. The viewpoint of Kuhn has explained that scientific change can replace one set of views in another community. Conclusion This paper has investigated on two fields of positivist research method ontology and epistemology. The study has observed the shortfall in the current practice of positive accounting research in practice. The study has concluded that researchers need better theoretical models for carrying out accounting research in a positivist way. The research models of accounting must be highly specified as well as vulnerable for testing the subject seriously. The study has revealed that much better measurement methods are required for rigorous testing of theoretical models. The third conclusion of this paper is to shift away towards estimation of parameters from the testing of hypothesis. In this way, parameters can be compared with the theoretical predictors. The fourth conclusion of this paper is to create a data archive of important concepts for measurement purpose. The final conclusion is to replicate data for validating results from hypothesis testing. References Ahmed, A.S. and Duellman, S., 2007. Accounting conservatism and board of director characteristics: An empirical analysis. Journal of accounting and economics, 43(2), pp.411-437. Ahrens, T. and Chapman, C.S., 2006. Doing qualitative field research in management accounting: Positioning data to contribute to theory. Accounting, Organizations and Society, 31(8), pp.819-841. Bertomeu, J. and Cheynel, E., 2013. 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