Compare And Contrast Positive Accounting Theory

b) Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form.

Both the principal and the agent have duties. The duties of the principal include compensation, reimbursement and indemnification, cooperation, and safe working conditions. The duties of the agent include loyalty, performance, notification, obedience, and accounting.

Principal-The principal is the person who is represented by an agent. The actions of the agent bind the principal

Managers and shareholders are the utmost contributors of these conflicts, hence affecting the entire structural organization of a company, its managerial system and eventually to the company's societal responsibility. A corporation is well organized with stipulated division of responsibilities among the arms of the organizational structure, shareholders, directors, managers and corporate officers. However, conflicts between managers in most firms and shareholders have brought about agency problems. Shares and their trade have seen many companies rise to big investments. Shareholders keep the companies running

In the corporate form of ownership, the shareholders are the owners of the firm. The shareholders elect the directors of the corporation, who in turn appoint the firm’s management. This separation of ownership from control in the corporate form of organization is what causes agency problems to exist. Management may act in its own or someone else’s best interests, rather than those of the shareholders. If such events

When talking about accounting, the first thing we should know is the history of its development. Traditionally, the development is from inductive to deductive. Inductive theory assume what is done by the majority is the most appropriate practice. However, It did not seek to evaluate the logic or merit of

This paper will start off by comparing, and contrasting the role of the manager and a

The “financial statements are formal reports providing information on a company's financial position, cash inflows and outflows, and the results of operations” (Hermanson, p.22). There are four main components that make up a financial statement. The four parts are, balance sheet, income statements, cash flow and, statement of owner’s equity. The balance sheets role is to define the company’s assets liabilities and revenue of the business. The income statement shows the income within the company. Cash flow reviews the position of the company by cash payments and receipts. Lastly, the statement of owner’s equity shows the amount of earnings, stock and other capitals of people in the company. (Hermanson, p.34-35).

An audit is based when management prepares the financial statements, maintain internal control over financial reporting, and provide relevant information and access to the auditor.

Another theory used in accounting is that of Materiality. This notion necessitates that accounting centers on material facts and not on facts that are immaterial to figuring revenues. Only transactions that have monetary

It has been become an issue of great concern that the accounting profession must find a common theory in order to address and put the issue at rest. This therefore, has called for the study of this topic under review “the demand for and supply of accounting theories: the market for excuses. As a result of this several questions have been raised. For instance, the question of why accounting theories are predominantly normative has been put forward by this article? Secondly, why no single theory in accounting profession that is generally or widely accepted? It has been argued that the financial accounting theories have been found to be ineffective most especially in the area of impacting accounting practice and policy, though, this has been

The definition of accounting theory according to Coetsee (2010) is described in two different ways. The first philosophy concludes that accounting theory is a set of general principles that guide the evolution of accounting practice. The other philosophy describes accounting theory as activity of explaining and predicting accounting practice. What the viewer can see from the statement of the first philosophy is that the accounting theory exists before accounting practices meanwhile the latter states that the accounting practice exists before the theory. Since there are many arguments about this matter, many academic researchers have concluded that accounting theory can be divided into two categories which are positive and normative theory.

Strategic objectives- pertain to value creation management makes on behalf of shareholders. Longterm strategies look

“Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria” (Arens A., Elder R. J., Beasley M. S. 2010). Auditing of a company should be done by an independent person that has no affiliation with the company that is being audited. The auditor needs to be educated enough to process the audit.

A type of internal cost that arises from, or must be paid to a manger acting on behalf of shareholders. Agency cost arises because of core problems such as conflicts of interest between share holders and management. Shareholders wish for management to run the company in away that increases shareholders value, but management may wish to grow the company in away that maximize their personal power and wealth that may not be in the best interest of shareholders.