Accounting Theory Essay

  • Length: 11 pages
  • Sources: 30
  • Subject: Economics
  • Type: Essay
  • Paper: #99402296

Excerpt from Essay :

Accounting Theory

Over the year, the world scholars continue to evaluate the economics of the world to understand their functioning. In this course, they developed the subject of accounting to assess the frameworks of financial principles. The accounting theory in discussion involves reviewing the historical foundations of financial reporting and creating new models of reporting the financial developments and exchanges (Richards, 2009, p. 17). Accounting theory evolves continually; thus, there are various theories and principles of accounting in practice within the world economics. These theories, in the process of developing them, the scholars expressed a desire to help enhance understanding of economics.

Positive Accounting Theory in neo-liberal ideology to solve problems of society

Positive accounting theory is one theory in accounting that resorts to explaining actual accounting practices, and predicting the future accounting practices. In this theory, it shows the essence of practicing certain accounting theories and the reason they are popular. In essence, its development was to initiate better understanding of accounting practices. The society is a vast market for most of the world's largest economies and companies to invest. The world market eludes the understanding of the business people as they try to capitalize on profits (Gaffikin, 2008, p. 78). The world markets, however, have many challenges; hence, the problems of the society are many. The society faces various challenges in its endeavor to maintain and sustain the ever-growing populations.

The growing population of the world is presenting more economic challenges than solutions. The world economies are not addressing three primary problems. These problems necessitated the need for a mechanism to understand and address them (Svendsen & Svendsen, 2009, p. 40). The three leading problems, the world market faces, are the increasing demand for goods and services, the scarcity for production of the demanded goods and services and the potentiality of the market. The first problem as seen is that the market is increasingly expanding, and this is creating a demand for more goods and services. The current production rates are not meeting the world's market demands for these necessities that the society requires. This is leading contributor to the challenges that the market expresses in coping with the economies. Secondly, the low levels of production are in return tied to the increased demand for goods and services. This increased demand for goods and services is causing a shortage in the available commodities. The production facilities available continue to threaten the market by limiting the supplies into the market. Lastly, there is the issue of whom to produce the goods and services for within this market. The challenges in the economy and the increased demands push the prices of commodities to higher levels (Deegan, 2009, p. 50). Consequently, this forces the market to narrow as the purchasing power of the customers stretches to its limit. This occurrence then contributes significantly to the economic challenges the society faces. To evaluate these problems, the world economies needed to develop a theory that explains these happenings and their relations.

The statement embedding of positive accounting theory in neo-liberal ideology to solve the entire problems of the society applies. The positive accounting theory mitigates contracting costs by instituting an agreement between the varying parties (Svendsen & Svendsen, 2009, p. 70). This brings in two perspectives of understanding the working of positive accounting towards solving the problems of the society markets. First, accounting theory brings in the perspective of efficiency. In efficiency, the various managers within the market try to establish the performance of their firms or ventures. The perspective explains the accounting practices that would facilitate efficiency in the production sectors, as well as, the utilization and exploitation of resources. Therefore, once the society establishes efficiency in its production processes, the aspect of increased demands would reduce. This, consequently, leads to more efficient and self-sustaining markets for the society. This perspective would contribute significantly to solving the challenges and problems of the markets within the society.

The second view is the opportunistic perspective. This perspective, in the positive accounting theory context, presents a way of understanding how the challenges and problems in the market come to be. Understanding how the crisis within the market comes to exist would then help the society to develop counter measures to ensure they solve the problems they face from the initial cause. The opportunistic perspective holds that, the managers, who are agents of the principles act with only self-interest at hand. This perspective explains that they only adopt accounting policies that favor themselves, allowing them to achieve more gains without considering the market and society. In this perspective, several hypotheses are applicable (Deegan & Unerman, 2006, p. 70). These include the bonus plan hypothesis, which states that the managers with bonus incentives tied to the performance of the firm manipulate the figures within the firm accounts. The extra costs then spill over to the unsuspecting markets within the society; hence, crisis within the markets. The second hypothesis of this perspective is debt hypothesis, which indicates that managers tend to post better profits in relation to the bonus plan with the intention of showing better performance. However, the accumulated debts spill into the business, contributing to the market problems. Therefore, this understanding helps the society to establish measures to solve the world economies problems they face. Lastly, the opportunistic perspective of positive accounting also has the political cost hypothesis. Politics dominate the society in every aspect. The world economy is not exception as politics spill over to this significant sector of the world. The political cost hypothesis indicates that, firms and businesses will tend to adopt accounting methods that show lower profits than the actual profits (Scott, 2012, p. 67). This is in their quest to evade the attention of politicians who have a habit of eying the industries that post high profits for their selfish gains, with practices such as placing higher regulations. This affects the world markets and society as a whole. Understanding these perspectives, as positive accounting theory helps to understand, is a primary step towards solving the problems of the society.

However, the theory does have some limitations that we cannot overlook. The theory only presents an understanding of what is happening and predicts what will happen in the future. However, it does not give prescriptions for action (Scott, 2012, p. 90). This means that it does not ideally solve the problems of the society. Secondly, it is not free from the value as it predicts how people will act without presenting options of what they should do. Lastly, it makes a skewed assumption that all managers and owners in the industry or market act only with self-interest in mind; with their aim being maximizing their wealth and not considering the adverse effects. This is not realistic. Thus, these limitations do contradict the statement that its embodiment in the neo-liberal ideology of solving the problems of society may not apply.

Regulation in balancing some of the social inequalities and ensuring the survival of capitalism

In the recent political debates within the country and across the globe, two issues continue to raise heated confrontations. These issues dominate the debates due to the weight they bear on the social, economic and political continuity of the world (Babones, 2009, p. 54). These two issues are the rising social and economic inequality and consequent measures in place to address this inequality. Inequality is a factor that is increasingly growing everywhere in the postindustrial capitalist world. Attempts to understand the issue at hand and its magnanimity remain skewed due to the illusions that the society holds. The society thinks that the issue of inequality is a result of politics. Additionally, they also have the view that politicking about the same issue will provide the solution to the problem. However, they fail to understand that inequality is an inevitable outcome of a society whose continuity oozes from capitalist activities.

The world we live in survives on the economic inequalities of the individuals. However, this is not to imply that economic inequality is a problem of an individual. Therefore, it is time to question, the source of this inequality. The levels of power and wealth held by individuals in the society is varies. In the democratic societies that we claim to have, we expect there to exist economic justice, fairness in sharing of resources and handling of power positions. However, interest of capitalism divide the society into what it is today. Capitalism is that is a characteristic of an economic system in terms of its production aspects (Bratton, Denham & Deutschmann, 2009, p. 19). This means that it is the ownership of means of production by individuals in the society. The unequal distribution of this factor of determining the success level of individuals in the economy contributes the inequality that we cry about every day.

Inequality creates notable problems in the society. The existence of economic inequality in the society results to problems such as social degradation (Neckerman, 2004, p. 34). Social degradation is the reason we have the super…

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