Accounting Theory

Table of Contents

Introduction 3

Prescriptive Theory and Descriptive Theory 3

Economic Theory 4

Decision Usefulness Theory 5

Critical Accounting Theory and Critical Theory 6

System-Oriented Theories 7

Open System Theories 8

Behavioral Decision Theory 9

Legitimacy Theory 10

Political Economy Theory 11

Institutional Theory 12

Stakeholder Theory 13

Agency Theory 14

Normative Theory 15

Public Interest Theory 16

Capture Theory 17

Economic Interest Theory/Private Interest Theory 17

Positive Accounting Theory 18

Chambers ' Theory of Accounting 19

Trickle Down theory 20

Introduction

Many accountants are familiar with the accounting standards and practices. They are always keeping their eyes on new standards and regulations roll-out. On the back of the new accounting practices, there are many accounting theories supported. Accounting standards are developed based on many descriptive and prescriptive accounting theories which were derived from many researches and studies performed by scholars and professionals. The backgrounds of the researches and studies are supported by some theories as well. The motivations of scholars in performing their studies, the society needs of new regulations as well as the information disclosure behaviors of entities can also be explained by theories. Various theories for and against regulation of financial accounting are discussed by the public. Various theoretical perspectives, including those provided by Positive Accounting Theory, Political Economy Theory, Stakeholder Theory, Institutional Theory and Legitimacy Theory can explain different types of voluntary reporting decisions. Critical (Accounting) theory, Behavioral Decision Theory Open System Theories and Decision Usefulness Theory goaded scholars and researchers to perform studies.

Prescriptive Theory and Descriptive Theory

Prescriptive theory means how accounting should be undertaken while descriptive

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