Compare And Contrast Positive Accounting Theory

1117 WordsSep 26, 20175 Pages
What is accounting theory? A coherent interrelated goal and a basic principle of the system used as a class of explanations of the phenomena that are expected to lead to consistent standards. It includes positive and normative theories (Deegan & Samkin, 2013, p. 76). Compare positive accounting theory (PAT) and Normative accounting theory. PAT is that because the company is fundamentally about a contract that determines its business, the core driver of the company 's success is efficiency. So positive accounting theory attempts to understand and predict how the actual company handles the accounting treatment of these transactions. On the other hand, normative accounting theory takes a different approach. It is based on theoretical…show more content…
78) The diagram also shows the owner invest capital to enterprises. Then the managers supply the financial information (statement) to owners. Then the about principal-agent relationships have two relationships. Those are shareholders and management & shareholders and auditors: Shareholders and management: Shareholders demand information and managers supply information. Shareholders use information to make invest decision and make employees salary plan. Shareholders and auditors: This is different with first relationship. The audit is seen as a key component of corporate governance, providing an independent review of the financial position of the organization. The auditors must follow the rules of the audit & risk committee. Owners hire agency need pay money. That is agency cost which is monitoring cost, bonding cost and residual cost. Monitoring cost includes audit fees that cost of monitoring behavior, such as by establishing management audit procedures and fees for meetings with financial analysts and principal shareholders, and Bonding cost include costs of preparing financial statement and management providing annual report data such as committee activity and risk management analysis, and cost of principal reviewing this data. Residual cost is that total cost minus monitoring cost minus bonding cost such as incentive schemes and remuneration packages for directors (Governance). Hypothesis: There are three hypothesizes in the positive theory which are based
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