Mr Kan Essay

873 Words Mar 3rd, 2013 4 Pages
What are the merits and weakness of inductive, deductive, and hierarchical approaches to accounting system classification? Illustrate your arguments with example.

Inductive classification: started with the data about the facts of accounting practices and generate the groups by statistical analysis.

Advantages: 1. Supposed to be more objective; 2. Appropriate to detect changes; 3. Replicable.

The inductive approach to identifying accounting patterns based on an analysis of individual practices, which supposes to be more objective. According to Da Costa et al (1978)’s research, a principal components analysis is applied to identify seven factors that can explain practices: degree of financial disclosure, company law,
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Problems arose in the Price Waterhouse surveys with respect to data errors, misleading answers, swamping of important questions by trivial ones, and exaggeration of differences between the US and UK. D’Arcy’s study (2001) also reveals this problem, the data was contain a number of mistakes, the set of data has a lot of problems which made their data was not reliable.

Due to inductive classifications start with the accounting rules or practices and use various statistical techniques to uncover the underlying groups, the outcome of study was depending on statistics methods.

Deductive classification:
The categories chosen depend on: (1) The beliefs of the person making the classification; (2) The purpose of accounting; (3) The country’s political, economics and cultural environment; (4) External factors likely to influence accounting systems.

Advantages: 1. The description of key factors in national accounting systems and the suggestion of factors influencing development; 2. Main contribution of the deductive studies is not so much to off classifications of particular countries, but rather to offer descriptions of the key features of national accounting systems and to suggest which factors are influential in their development.

Disadvantages: 1. Idea or theory is vague biased or outdated.

The theory may be subjective or intuitive

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