Accounting theory and foundational principles

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 power countries and developing countries in the world. It is also the reason the rich continue being rich while the poor struggle in their poverty. It is the reason there are estates for the rich and those for the middle class, as well as, those for the poor people in the society. Secondly, economic inequality is the reason there exists the various social divisions. These include the classification into either, rich, super wealthy, middle class or poor. These social divisions have created their underlying problems for the society. Additionally, the inequalities in the society cause underachievement. Capital allows people to have access to means of production; hence, enabling them to achieve greater heights of success (Richards, 2009, p. 78). However, due to inequality, those with potential to become successful do not achieve the levels of success desired due to inequality; thus, underachievement in the society. Lastly, the heightened levels of criminal activities are due to inequality within the society. If capitalism ensured equality and people had equal opportunities to advance, it is clear that there would not be the high levels of criminals. Therefore, as it is evident, the increased differences and inequality in the society is a leading cause of distress. Thus, it is essential that society and world economies adopt measures to regulate social inequality.

Various delegation meetings and congregations continue to contemplate and politic on measures to adopt to regulate the subject of capitalism. Nonetheless, it is necessary to note that capitalism is unavoidable. Despite the many challenges and problems associated with social inequality brought by capitalism, it has its positive aspect. It ensures the continuity of success as people strive to achieve higher standards of living. Therefore, eliminating capitalism would simply collapse all the economies of the world. In this case, it is only fair to establish regulatory measures for capitalism (Dorling, 2010, p. 77). To move towards balancing the inequalities within the society, alternative regulations should center on developing the practice of public provision, mutualism and privatization industry. The regulations should focus on curbing the practices of capitalist corporations and shareholders to ensure that there is a just society, which does not exploit others. Therefore, it is true that, to create a just society, free from capitalism, or with limited capitalist activity, there is a need to create regulations, and stringent regulations for that case. Politicking about capitalism and inequality is not the solution to the issue (Scott, 2009, p. 67). The solution is in regulatory measures to facilitate justice in the society and democracy in economic strengthening and growth.

Resort to the types of normative speculation and presumptive methodologies are abrogation of the scientific commitment to understanding real accounting issues.

Accounting constitutes the language of business as it enhances the skills an entrepreneur needs to manage the finances of the venture. Therefore, it is correct to state that accounting is the science in the field of business. Accounting is a science in the sense that, like other sciences, it requires application of a set of principles. These principles are similar to the scientific principles that govern the practices in the subject (Saudagaran, 2009, p. 80). Additionally, accounting is a science as it applies concepts and objectives that are particulate to given set of circumstances. Again, the science of accounting applies two fundamental qualitative characteristics. These fundamentals are consistency and comparability. Therefore, as science is subject to changes depending on the situation in the process of analysis, accounting also varies with the circumstances at hand; thus, necessitating switching between the methods and theories of accounting.

Scientific theory entails a comprehensive explanation of a given aspect of natural occurrence, which comes after a vast indulgence of evidence that supports the idea or conclusion. The conclusion comes after repeated observations by the investigating parties, who then demonstrate the truth in the findings. Therefore, accounting as a subject of understanding, it entails several theories that relate to the observations within the practice (Watts & Zimmerman, 1986, p. 60). These theories in accounting attempt to make predictions within the business environment as observed from the occurrences within the industry. This is a scientific approach that existed before and still exists to date, despite the challenges to the practice. There are new methodologies and practices in accounting as a subject that are abrogating this scientific commitment towards understanding the issues in accounting. These new methodologies include normative speculation and presumptions.

Normative statements entail outlining and stating how things ought to be. They present evidence of what should be and its value should be. Normative speculation is; therefore, an integral part of the life of humans (Richards, 2009, p. 118). It is using normative speculation that humans develop the fundamental aspects of life. For instance, people prioritize goals, organize, and plan their thought, belief action and emotions on various subjects such as politics based on normative speculations. Therefore, as it indicates, normative speculation is a practice that people employ in their daily lives. Additionally, the process of making presumptions is a common practice with humans. It is common for a person to conclude on course of action by presuming what the future holds. These methodologies of the natural life activity are evolving and are creeping into the world of accounting. These methodologies have developed into full concepts that are applicable in accounting practice (Davis & Feng, 2009, p. 26). The application of normative speculation in accounting keeps the predictions of the future in the course before the scientific commitment to understand the issues are complete. The normative speculation practices are taking over the process of making conclusive accounting theory that is reliable and applicable on the long-term. Nonetheless, despite the shortcomings of the normative speculation and presumptive methodologies, they are becoming an abrogation for the scientific commitments in understanding the issues in accounting practice.

Alternative methods, which had underlying ontological and epistemological positions different from those of the positivist program that dominated Western thinking

A positivist thinking borders along the lines of exploring the social reality based on the philosophical ideas of greater philosophers or phenomenon in the environment in question (Nikolai, Bazley & Jones 2010, p. 101). In accounting, it is traditional in the western thinking that the surrounding of the study provides the means of generating knowledge. The framework in positivist thinking entails set principles and assumptions. The assumptions include empiricism, determinism and generality. This means that there is empirical analysis that is quantitative analysis and generalizing of the findings or ideas found correct. In determinism, the events in the study are because of circumstances. Empiricism entails collection and analysis of verifiable evidence in support of hypothesis and generality is making an overall observation. However, in view of these methodologies, the need for alternatives to understand the ontological and epistemological positions became evident.