ACCOUNTING THEORY CONSTRUCTION

Muh.Ferial Ferniawan/A031191156
Muhammad Farhan/A031191116
HASANUDDIN UNIVERSITY
ACCOUNTING MAJOR
2021/2022
 Accounting Theory Construction

A scientific discipline can be viewed as scientific knowledge if the discipline has a

clear scientific status. This is because a clear scientific status will strengthen the existence or
existence of science itself, when the discipline is scientifically tested. The scientific status of
a discipline indicates the readiness of the discipline to be tested empirically. Accounting
theory contains the overall analysis and its components which become a reference source for
explaining and predicting phenomena or events in accounting. A systematic set of interrelated
concepts, definitions and propositions proposed to explain and predict phenomena or facts.
The set of hypotheses is the result of research using certain scientific methods. Thus, the
status of accounting theory will become scientific equivalent to the understanding of theory
in astronomy, economics, physics, biology and so on.
Accounting can be viewed as both a practice and a theory, this in the end can be
useful in various fields because financial statements are used as decision makers. Accounting
that is practiced in a country area is a result of design and development to achieve a certain
social goal. The accounting practice is certainly influenced by various environmental factors,
such as social, economic, political factors, etc. and it causes accounting practices in a certain
area of the country to be different from accounting practices in other countries. To implement
a good practice, it is not enough just to study accounting in practice. Because behind the
practice of accounting there are various ideas, basic assumptions, concepts, explanations, etc.,
all of which are summarized in accounting theory.
Theory is a crystallization of empirical phenomena that occur which are described in
the form of propositions and presented in the form of short sentences that apply in general.
Accounting theory can be useful if the formulation of the theory can be used as a tool to
predict what might happen in the future. Accounting theory can provide an explanation of
accounting practice, answer and explain all the phenomena behind the application of a
method in accounting practice.
Theory can be defined as the result of thinking based on the scientific method or
logic. The theory consists of the first two parts, the classical assumptions including the
definitions of the variables and the logic that links between these variables. Second, the set of
important hypotheses. While the hypothesis is the initial assumption of the phenomenon or
problem to be analyzed. The purpose of Accounting Theory is to explain and predict
accounting practices.
Accounting theory is a concept, definition, and proposition that presents a systematic
description of accounting phenomena that explains the relationship between variables and
other variables in the accounting structure with the intention of being able to explain and
predict phenomena that will emerge. Accounting theory itself is a knowledge that explains
why accounting practices work as they exist today. At the beginning of practice even a few
years later there was no accounting theory. Therefore, as long as there is no formal
accounting theory structure, what happens is that there are many alternative recording
methods that apply in practice, all of which are permitted, causing public confusion.
Therefore, accounting prescriptions were developed to solve specific problems. In general,
the main function of Accounting Theory is to provide a framework for developing new ideas
and assisting the accounting selection process.

A. Pragmatic Theory
Pragmatic theory emphasizes the effect of accounting reports and summary on
behavior or decisions. Emphasis in the development of accounting theory is the acceptance of
the orientation of communication and decision making. It targets the relevance of the
information communicated to decision makers and the behavior of various individuals or
groups as a result of the presentation of accounting information and the effect of reports from
external parties on management and the effect of feedback on the actions of accountants and
auditors. Thus, behavioral theory measures and assesses the economic, psychological, and
sociological effects of alternative accounting procedures and their reporting media. It is now
appropriate to consider several accounting theories and classify them according to our general
discussion of theory formulation in chapter 2. This review is far from complete. and, with a
brief need. Many of the discussions are developed and discussed in more detail in the
following chapters. The main purpose of this chapter is to provide some insight: how
accounting theory has historically been formulated.

1. Descriptive Method
Perhaps the oldest and most universal method of developing accounting theory is to
use descriptive pragmatics. With this method, we continue to observe the behavior of
accountants to copy accounting procedures and principles. Thus, it is an inductive approach
to the development of accounting theory is a popular way to learn accounting skills until
quite recently, an accountant who has been trained by apprenticeship or given articles to
practice accountants for several years.
There are some criticisms of this approach to construction theory. First, it is
claimed that there is no logical judgment of the accountant's actions. It is not necessarily that
in the way the accountant counts in which he should calculate and no analytical judgment
regarding the quality of his actions or calculations is made. Second, this method does not
allow change, because it is circular in approach. Accounting techniques are never in doubt,
they are perpetuated by the next generation of pragmatic accounting observers. The
conclusion is, of course, in relation to a normative theory of how.Accounting should be done
rather than a pragmatic theory that describes real-world practice.

2. Psychological Method
Another pragmatic approach is to observe user reactions to financial output,
Accountants manipulate accounting transactions according to different syntactic rules used to
generate financial statements, (e.g. different inflation accounting systems, These reports are
then received by users. this is taken as evidence that financial statements are 'useful' and
contain relevant information `However, there are some problems. Some recipients may react
logically. Others may have responses before being conditioned and others may not react
when they do. An improvement from this approach adapts for this reason by concentrating on
decision theory and not the responses of individual decision makers.In other words, only
logical and well-defined accounting theories involving the measurement of accounting
attributes are developed and tested.

B. Syntactic and Semantic Theory

This theory relates to the structure of the process of data collection and financial
reporting.

Syntactic theory tries to apply current accounting practices and predicts how
accountants should react to certain situations or how they will report certain events. Theories
related to the accounting structure include the theory of traditional accounting practices (by
Ijiri and Sterling) called the Ijiri model, this model explains traditional accounting practices
that emphasize the historical cost system.It is necessary to obtain a broader view of the
ongoing practice. This theory allows to be evaluated more precisely, also allows evaluation of
existing practices, which are not in accordance with traditional theory. Theories related to the
structure of accounting can be tested for logical consistency within the theory, or to see if
they can actually predict what accountants do.

Semantic theory is needed to provide an understanding of accounting concepts so that

the interpretation of the concepts by the maker (accountant) is the same as the interpretation
of the users of accounting reports. In general, accounting concepts cannot be interpreted and
have no meaning other than as a result of the accounting procedures themselves. For
example, profit is an artificial concept that reflects the excess of revenues over expenses, after
a rule has been applied to measure revenues and expenses.

C. Normative Theory
Normative accounting theory is also called prescriptive theory which tries to answer
the question "what should be". Here accounting is considered as a regulatory norm which
must be followed no matter whether it is applicable or practiced now or not. Normative
theory seeks to justify what should be practiced, for example the statement that financial
statements should be based on certain asset measurement methods. According to Nelson
(1973) in the accounting literature, normative theory is often called a priori theory (meaning
from cause to effect or is deductive). The reason is that normative theory is not generated
from empirical research, but is produced from "semi-research" activities.
Normative theory only mentions hypotheses about how accounting should be
practiced without testing these hypotheses. At the beginning of its development, normative
accounting theory did not use an investigative approach, and tended to be structured to
produce accounting postulates.
The formulation of normative accounting reached its golden age in the 1950s and
1960s. During this period accounting formulators were more interested in policy
recommendations and what should be done, rather than what is now being practiced. During
this period, normative theory concentrated more on:
- Real profit creation (true income)
This theory concentrates on creating a single, unique and true measure of assets and
profits. However, there is no agreement on what is meant by the correct measure of value and
profit.
- Decision making (decision usefulness)
This approach assumes that the basic purpose of accounting is to assist the decision-
making process by providing relevant or useful accounting data.
 In most cases, this theory is based on the classical economic concept of profit and
wealth or the economic concept of rational decision making. Usually the concept is also
based on account adjustments due to the effects of inflation or the market value of assets.
This theory is basically a theory of accounting measurement. The theory is normative because
it is based on the assumption:
Accounting should be a measurement system
Profit and value can be measured precisely
Financial accounting is useful for making economic decisions
Inefficient market (in an economic sense)
There are several unique profit metrics.
Because normative theory is considered a subjective personal opinion, it cannot be
taken for granted, it must be empirically tested in order to have a strong theoretical basis.
Supporters of this theory usually describe the resulting accounting system as something ideal,
recommending the replacement of historical cost accounting systems and the use of
normative theory by all parties.

D. Positive Theory
During the 1970s accounting theory applied empirical methods which were also
referred to as positive or empirical methodologies which meant testing, or hypotheses or
accounting theories had to be returned according to facts and events that existed in the real
world. The main focus of positive accounting studies is on empirical testing of some of the
assumptions made by normative accounting theorists. For example, using questionnaires and
other survey techniques, the nature or form of the usefulness of the different accounting
techniques will be determined.
The main difference between positive and normative theory is that normative
theory is prescriptive whereas positive theory is descriptive, explanatory or predictive.
Normative theory guides to govern how accountants should act to achieve outcomes that are
considered good, appropriate and fair and so on. While positive theory describes how a
person acts well, explaining why people should act in the right way.

E. Another Perspective
At this point, we will focus on what might be considered a scientific approach. This
approach is also used by many researchers or accounting experts and is published in some
academic journals or accounting. Keep in mind that it is based on definite ontological
assumptions (the way we see the world) which impact on different epistemologies (how we
learn) and scientific research methods. for different studies.
The naturalistic approach can be compared with scientific accounting research
which tends to generalize the results of testing a number of hypotheses from general
accounting theories. .
The research approach is generally described as a 'scientific' approach and is the
dominant approach currently used by researchers in the accounting field, particularly in the
United States. It is important to note that it is based on certain ontological assumptions (the
way we view the world), which implies different epistemologies (the way we gather
knowledge) and different research methodologies and methods. This, in turn, affects the types
of research problems posed and the hypotheses tested. It is important for accounting
researchers to be clear about the assumptions underlying their research and to consider
whether alternative research approaches are more appropriate. There is a growing body of
literature, loosely labeled As naturalistic research, the very importance of a highly structured
approach is adopted by 'scientific' researchers.

F. Scientific approach applied to accounting “Misunderstanding of purpose”

Many misconceptions about there are attempts to apply a scientific approach to
accounting. Some believe that this effort is to make scientists from accounting practitioners.
This view, of course, is ridiculous. A scientist is one who uses the scientific method and,
therefore, especially researchers. The medical profession provides a good analogy of the
differences between researchers and practitioners and the uses and effects of the scientific
method.
An accountant who believes in a scientific approach wants empirical evidence
and logical explanations to support accounting practice so that practitioners can recommend
the most appropriate method for a given situation based on this evidence. People find
statements more convincing when supported by objective, empirical evidence than statements
based on rationalization. can only be debated. In fact, accountants are often unsure about the
validity of what they are directed to prescribe.
Another common misconception about applying the scientific view to accounting is
that 'absolute truth' is desirable, which of course is not possible. Therefore argue that it is
futile to seek what is impossible. Such an argument is based on the misconception that
science knows absolute truth. The scientific method is imperfect. It is a human invention to
help us ascertain whether a statement should be assumed to be true or not. The structure of
the process by which this determination is made is such that no one can claim absolute truth
in science. Thus, scientific truth is provisional. A statement or theory gains the status of
`truth' only after scientists in the area from which the theory develops decide that the
evidence is sufficiently persuasive. The history of science reveals that substitutions,
adjustments and modifications of a theory are made clear in the evidence. For example,
Newton's theory gave way to Einstein's theory of relativity. In view of what we say, we must
have a less idealistic conception of the terms 'truth' and 'fact, in science.