Financial Accounting Theory Essay

If some research is undertaken that provides evidence that capital markets do not always behave in accordance with the Efficient Market Hypothesis, does this invalidate research that adopts an assumption that capital markets are efficient?

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92). The main objective of normative accounting theories is to provide guidance to individuals to enable them to select the most appropriate accounting policies for given circumstances (Deegan, 2003, p. 90).

Accountants are relied upon to be trustworthy and maintain high ethical standards. It is because of the nature of the profession that puts them in a position of trust with people who rely on their professional judgment and guidance in making decisions. These decisions are extremely important in accounting and more so that companies that have high ethical standard or main good ethical culture spend enormous time to train the staffs about the conduct that is expected of them.

Assess the degree to which the firm’s accounting reflects the underlying business reality. Identify accounting distortions and evaluate their impact on profits and the sustainability of profits.

A. accounting functions must be performed by an "outsider" (rather than by an employee of the business) in order to avoid conflicts of interest

1. Ethical Obligations and Decision in Accounting Shawn M. Mintz and Roselyn E. Morris page 248

Consistency. When the company chooses the accounting method, it should continue using it throughout. It should be the same from period to period and year to year. If the company chooses to change the method, it should be disclosed and explained why the company made such a change. This concept can also be described as logical coherence among parts or things, when the same sequence is followed from one period to another.

To over view the knowledge we learnt from accounting theory and practice, the main thing I can conclude that is the tendency of accounting will shift away from technical way to people’s behaviour way. By understanding what should do, we should ask why and how we could improve and change it into a better way. This essay aims to explain how the theoretical material that we learn in lectures can be developed under a real practical manner.

A second disadvantage of using interpretivist methods of research is that the results are not representative. Using interpretivist research methods

This frequently puts the auditor in the position, in effect, of deciding whether a company is able to obtain the funds it needs to continue operating. Thus, the auditor’s qualification tends to be a self-fulfilling prophecy. The auditor’s expression of uncertainty about the company’s ability to continue may contribute to making it a certainty.

One explanation of why firms might choose to put into practice conservative accounting practices lies in efficient contracting theory, for example, conservative accounting can be used as part of a firms strategy to ease the conflicts that arise among the many claimants of a firm’s net assets. This is because conservative accounting methods place restrictions on the distribution of those net assets thereby limiting the scope for self-serving opportunistic behavior. Conservative accounting can also help in bringing into line the interests of managers and shareholders through its impact on accounting earnings measures that are regularly used in management compensation contracts (Iyengar & Zampelli, 2010).

This report investigates the application of conservatism in accounting and its role in financial reporting. We also examine and compare the advantages and disadvantages associated with conservatism and provide our opinion about conservatism. Conservatism may be a controversial accounting measurement principle but it has a long history and its use is far-reaching. Conservatism by definition is that all probable losses or expenditures will be recognized as they

Accounting is the art of measuring and communicating financial information. To maintain uniformity and consistency in preparing and maintaining books of accounts, certain rules or principles have been evolved. These rules or principles are classified as concepts and conventions. One of the important concept in accounting is “Measurement” (Mattessich, 1977)

Accounting can be defined in a number of ways, but I chose the book definition, which is; Accounting is an information system that provides reports to stakeholders about the economic activities and condition of business. The person in charge of accounting is called the accountant. The accountant is typically required to follow a set of rules and regulations. These rules and regulations are called the General Accepted Accounting Principles. Throughout these next few paragraphs, I will be giving you the history and evolution of accounting, and I will be explaining who the stakeholders are and what type of information they require, and I will be explaining the role of accounting in business. There will be many examples and type of business