FINANCIAL ASSIGNMENT

Financial Assignment

Financial Assignment

There are a number of users of financial statements within any respective firm. Usually, some of the intended effects of accounting choices can become real effects. On the other hand, there are also foreseen consequences that may emanate from external or internal factors. Financial Statements also play a major role in Positive Accounting Theory (Balchin, 1994,, 43).

Positive Accounting Theory (PAT) attempts to explain why things are as they are. For example, why managers choose a particular accounting method over another, or decide not to invest in research and development. For politicians to make changes to the accounting system must not only know what they are trying to achieve (that is, they must form an opinion about the desired result), which also need to understand why people behave differently and how the changes affect them. They refer to normative theory, the above theory, and a positive result for a second. Positive accounting theory is verified by collecting and analyzing data. Typically, researchers or the study of one organization in depth over a long period of time, or take a small amount of data on a much larger number of organizations. An analysis of one organization may mean that the study results are not generalize to other organizations. Nevertheless, the analysis of a large number of organizations to draw conclusions about the organization of "media" does not say much about individual cases (Scott, 2006) (Balchin, 1994,, 43).

The positive theory of accounting is considered one of the most innovative (and, therefore, granted), but "controversial" theory of accounting literature. Developed in the mid-1970 by scientists at the University of Rochester, the positive theory of accounting has had a significant impact on the accounting literature, particularly in Anglo-American academic community. Firstly, in accordance with the positive theory of accounting, accounting is an integral part of the structure of each organization, so the development of organization theory will be closely linked with the development of accounting theory (Simms & Keating, 1999) (Clarke, 1994,, 11).

In particular, with regard to financial statements, "the financial accounting literature focuses on the recipes that must be content of financial statements. Little attention to the development of a theory to explain many phenomena that are interesting, in particular, to explain why the financial statements of the form (Watts and Zimmerman, 1979)." Prescriptive "argument against the theory of standard is also supported by Watts and Zimmerman. The positive theory of accounting is to explain why the financial statements of the form (Watt, 1977). It also aims to produce policy prescriptions for government accounting, ie, accounting standards (Watts, Zimmerman, 1986), but the legal aspect is based on "positive" (ie, empirical) evidence (Clarke, 1994,, 11).

Gordon argues that many accountants are more interested in establishing accounting principles than in considering how one goes about doing so (Gordon, 1964). In fact some accountants merely state 'correct' principles with little or no effort at substantiating their correctness”. With regards to financial statements, Gordon argues that senior management is likely to select accounting procedures that, “within ...