Overview of Positive Accounting Theory
A comprehensive study on positive accounting has been done in this report which represents the problems faced by the organization in processing the accounts and making of statement of accounts. The report will also evaluate the different theories and methods adopted by the organization for efficient positive accounting approach. Epistemology and ontology are also been discussed in the report and their effects on positive accounting theory and response of human behavior on positive accounting practices.
The report is initiated with the discloser of positive accounting research article to represent the downside of recent methods of positive accounting. A basic idea about the current and potential factors which shall disclose the overall result and opinions given in the article are also been discussed in the report. The report also includes the research questions prepared in the article reflecting the major issues in the positive accounting theory. It also provides the apparent understanding of the problems faced by the accountant while preparing the accounts using the theory.
Cause and effect relationship with the positive accounting practices disclosing the human behavior has also been discussed in the report. Positive and negative impacts of positive accounting theory are discussed at the end of the report with the limitations of the theory. To end with the report conclusion has been provided giving the suggestions about the human behavior and its effects according to the theory. The conclusion also discusses the importance of auditor’s diligence while working to reduce the probability of material misstatement remaining undetermined by the auditor in the financial statement of the company.
Outline of the article
This paper focus on positive accounting practice and reciprocal behavior of human towards this approach. There are several factors direct or indirect which effects human behavior, which are being considered in this article. This approach can facilitate humans to mitigate the problems faced while taking decision. The article consists of an intellectual program for creating positive accounting practice enhanced and useful in accounting research practices. Based on the human behavior and their reciprocal behavior various arguments on positive accounting theory have been developed evaluating cause and effect relation.
Researchers have argued that the positive accounting theory should be based on personal judgment based on the rational behavior of humans (Waymire, 2014). Due diligence is used by the auditor to evade errors and mistakes in the accounting data. Since the due diligence is used by the auditor to evaluate the accounting practices followed by the company, no pressure should be given to them as it may lead to complete their work in hassle increasing the chance of mistakes in their auditing report.
Another theory which focus on the free will of humans in positive accounting which reveals that when human are free from controls and are allowed to take decision on their conscientiousness then the decision taken would be restricted by their mind capacity and their view point’s which may be small (Brown, Preiato and Tarca, 2014). Free will of individual may sometimes be not agreeable with the scientific studies done by the researchers. Another reason to focus on free will is when the accountant can make accounts on its free will, the choices made by him may be random and cannot be compelled by the organization and is not explainable to the world.
Human Behavior and Its Effects on Positive Accounting Theory
In the research program on positive accounting no comprehensive theory or statement has been underlined which reflects the human behavior. No certain implication of or applicability of human behavior has been confirmed by these programs. The theory also portrays positive ontology and epistemology of the approach may provide misleading results of human behavior to the reader. Auditor should consider these problems before conducting its audit procedure to reduce the problem of material misstatement.
Though the main problem in positive accounting theory research has taken place due to the understanding of the researcher about the positive and quantitative researches. There is confusion while considering the research which can provide positive results while maintaining the quality of the research. Since there is the need to collect data from the external sources to develop the initial understanding, qualitative research has been used as a great tool for collecting this data (Klemstine and Maher, 2014).
Therefore researchers should evaluate disclaimers made by auditors while giving its view on entity accounting framework for making their research presentable and consistent to the reader. Hypothesis testing has been recommended by some scholars for quantitative positive accounting practices ( Umanitoba, 2017). Positive accounting theory also recognizes that the revolutionizing conditions in the industry create the need to adopt flexibility in the adopting accounting policies by the accountant of the organization. Auditors report issued by the auditor on the true and fair view of the financial statement should be evaluated by the researchers to make the research more consistent.
Further in the article it has also been observed that the paper has also helped in the research done for understanding the human behavior and relating their cause and effects in the working environment of the organization. This
Research Questions from the article
- How a positive accounting practice is different from intellectual program?
- What factors are required to make positive research program successful?
- What are the problems which are being faced in positive accounting practices?
- Which possible factors forced to examine the ontology and epistemology in the current accounting practices?
Theoretical Framework
Various theoretical frameworks are been used in this research programs to evaluate the weakness of the existing research program on positive accounting. From the book by Engle and Hunton, 2015 it has further been observed that the theoretical frameworks and representation can increase the efficiency of positive accounting research in a company.
The concept of audit of accounts increases the correctness of the accounts (Choi, Kim, Liu and Simunic, 2009). This article focuses on impact of audit of accounts of the company, how it effects on management and legal compliance need to be followed. Many test which can be implied while doing the audit of the financial statement by the auditor to reduce the happening of fraud in the company. Hence it has been included as important concept in qualitative research in positive accounting.
Decisions taken by the management are based on the accounting data which may contain errors and accounting mistakes leading to wrong decision making by the management. Competency of manager and auditor fees are the main factors of positive accounting research as mentioned by Choi et al. (2009) in his paper. Audit fee depends on the complexity of the work that is required in the audit engagement. This framework recommends many tests which can be applied on positive accounting research. Use of hypothetical test by the auditor in his audit function can assist him to implement audit functioning in the positive accounting practice. This also helps an auditor to develop proper understanding of the auditing functioning used by him.
Positive and Negative Impacts of Positive Accounting Theory
Another approach used which has been used in the article is qualitative positive research, provided by the Darwin’s theory of evaluation. In this model the author has proposed two reasons to use qualitative approach of positive accounting, first is collecting data from the public to develop the preliminary understanding and second is to analyze such data and implement such data to measure variances in positive accounting practices (Pierce and Beko, 2009). This approach also helps the auditor of the company to measure accounting data and auditing data received from the company.
This also supports in recognizing the behavior of accountant and analyzing the alternatives used by him while preparing accounts. Thereafter this can be used by auditor to perceive and resolve the errors possible in the accounting framework of the company. It can also assist the accountant in preparing the accounts of the company and thereby helping the auditor to give its opinion on data collected from the organization while detecting the material misstatement in the accounting data. If realistic approach is not used by the auditor the qualitative results will not be premature which may result in type one errors which includes wrong specifications.
Positive accounting accepted null hypothesis which is used to determine human behavior possible factors and documenting accounting data of the entity. Test statistic is an important assumption used in null hypothesis (Smith, 2014). Many international papers provide representations and measurement to solve severe problem and mistakes present in positive accounting research.
Implications of positive accounting research
Most important implication of positive accounting theory understands of human behavior. Effects and cause of human behavior on positive accounting theory has been provided by many research programs. Qualitative approach towards accounting has also assisted in collecting data required to measure the reciprocal behavior of accountant. Study of human behavior can be done using this research which is a valuable dimension in this research. While developing the audit procedure focus was made on identification of inaccuracy and frequent mistakes done in accountancy by the accountant of the company. The rationale while developing this system was to offer handy answers to accountant to resolve problems and not to improve the understanding of human behavior related to accounts. Many academic papers also sustain to assess the human behavior and their reciprocal approach.
Limitations of positive accounting research
In the given article all the research made and data gathered are from the primary and secondary sources. Since the data is not reliable evaluation of human behavior may fail in particular situations. Sometimes the auditor can also not be up to snuff the errors while following positive accounting practices. Research done on ontology and epistemology may not be helpful since the data collected provides less certain results. Auditor may also fail to determine the problems and errors present in the accounting data.
Since the data used in the hypothetical test are not certain due the assumptions used while collecting them research may not be that effective and efficient as expected. Understanding of accountant also limits the extent to which positive accounting research can be effective. Another reason which limits the efficiency of this accounting approach is difference between the thought process of accountant and auditor (Bertomeu, Darrough and Xue, 2017).
Conclusion
The report discussed the significance and limitations of positive accounting theory and also reflects the effect of current accounting practices on successful implementation of research. Measuring the imperative theory used by the auditor while evaluating the accounting performance of the organization requirement of data is an important need. Utilization of data and qualitative approaches used in the collection of data is the major critique of positive accounting research. Further evaluation was done to find that auditor has to measure the behavior of accountant and the procedures used by him while recording the transactions in the financial statement effectively. It will also facilitate the auditor of the company to identify the misstatements in the financial statement prepared by the accountant.
Another problem which was determined while evaluating this research was establishment of cause and effect relationship with human. The article also consist of many accounting frameworks and different theories about the decision making behavior of humans and response of auditor in his audit report while analyzing the behavior of accountant with respect to the positive accounting theory. To conclude with, it can be said that the positive accounting theory can assist the auditor by providing standards reducing the probabilities of errors taking place while conducting audit of financial statement of the entity.
References
Choi, J.H., Kim, J.B., Liu, X., Simunic, D. A. (2009). Cross-listing audit fee premiums: Theory and evidence. The Accounting Review. 84 (5), 1429-1463.
Engle, T.J. and Hunton, J.E. (2015). Retraction: The Effects of Small Monetary Incentives on Response Quality and Rates in the Positive Confirmation of Account Receivable Balances. AUDITING: A Journal of Practice & Theory. 34(3), pp.201-201.
Umanitoba. (2017). Positive Accounting Theory. Retrieved on 19 April 2017 from: https://www.google.co.in/url?sa=t&rct=j&q=&edata-src=s&source=web&cd=6&cad=rja&uact=8&sqi=2&ved=0ahUKEwjM-5io4a_TAhUQTo8KHeRbB0oQFghBMAU&url=http%3A%2F%2Fwww.umanitoba.ca%2Ffaculties%2Fmanagement%2Facctfin%2Fcourses%2F9.403%2Fgroup84.doc&usg=AFQjCNFgJuBYHjXJPconZ86u7e9upSVGIQ
Bertomeu, J., Darrough, M. and Xue, W., 2017. Optimal conservatism with earnings manipulation. Contemporary Accounting Research, 34(1), pp.252-284
Klemstine, C.F. and Maher, M.W., 2014. Management Accounting Research (RLE Accounting): A Review and Annotated Bibliography. Routledge.
Waymire, G.B., 2014. Neuroscience and ultimate causation in accounting research. The Accounting Review, 89(6), pp.2011-2019.
Brown, P., Preiato, J. and Tarca, A., 2014. Measuring country differences in enforcement of accounting standards: An audit and enforcement proxy. Journal of Business Finance & Accounting, 41(1-2), pp.1-52.
Pierce, J. Beko, M. (2009). Moral in tooth and claw. The Chronicle of Higher. Education https://chronicle.com/article/Moral-in-ToothClaw/48800/.
Smith, M., 2014. Research methods in accounting. Sage. London. Pp 106-128.
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