Approaches to the formation of accounting

theory
Learning objectives
After studying this topic, you should have
achieved the following learning objectives
as:
To define the Approaches to the
formation of accounting theory.
To Know the types Approaches to the
formation of accounting theory.

,
Introduction
The approaches to forming the accounting
theory are the scientific methods that have
been applied over time with the aim of
developing the contemporary accounting
model and then building the accounting
theory, including traditional and non-
traditional approaches.
The Traditional Approaches :

These methods have been known as

"traditional" approaches, because they are
characterized by the absence of a verification
process in attempting to develop an
accounting theory. Traditional methods also
constitute traditional research rather than
new streams of research that rely on
traditional thinking to formulate a
conceptual accounting framework It includes:
Non-theoretical
Theoretical
Non-theoretical Approaches
These approaches do not have a theoretical
framework to address problems, and the most
important non-theoretical approaches are
1 - The pragmatic or practical approach
This approach depends on providing solutions
and forming an accounting theory that is
consistent with actual practices in the real world
and reality applications because the origin of
accounting arose from reality and assumes the
necessity of utility and relevance of theory to
decision makers. This approach is considered
one of the utility approaches and depends on
providing practical solutions.
2 - Authoritarian Approach
It is based on the concept of the authority granted to
the bodies responsible for accounting that impose
standards that must be followed by accountants. It is
another aspect of the pragmatic approach, and it is
based on the same foundations, but it issues its
theories in the form of publications and bulletins
through official accounting conglomerates and
groups such as the Association of Certified Public
Accountants and quasi-governmental organizations.
It issues its instructions and decisions to be
implemented by the authority of the law.
3 - Theory of Accounts
This approach is based on the two accounting
equations, which are the financial position equation
(assets = liabilities + equity) and the income
statement equation (accounting profit = revenues -
expenses).
Theoretical Approaches:

The theory based approaches to the

formulation of accounting principles and to
the development of an accounting theory
may be divided into six categories as under -
-1Deductive approach
-2Inductive approach
-3Ethical approach
-4Sociological approach
-5Economic approach
-6Eclectic approach
Comprehensive Theoretical Approaches
1 - Inductive Method
The inductive approach is based on reaching generalizations and
general conclusions through special observations and
measurements. The steps of the inductive approach are
summarized in four steps:
A- Study and analyze phenomena and events, and identify
problems.
b - Setting hypotheses to solve these problems and explaining
these phenomena.
C - Testing those hypotheses to determine whether they are fully
or partially correct.
d - Recognizing the imposition as a general law in the event that
it is completely proven correct, or making some amendments to
it when some shortcomings are discovered, or the decision to
replace the imposition with a new one in the event that it is not
valid as an integrated hypothesis.
Direction: from the specific to the general
Private = Reality Views
General = generalization of principles
2 - Deductive Method
The deductive approach is based on the transition or
gradation from the general to the specific, although the
inductive approach depends on experience and reading
the actual procedures, the deductive approach depends on
logical and rational thinking, and the deductive approach
depends on the validity and acceptance of the general
theory and the integrity of the measurement method. The
steps of the deductive approach are summarized in four
steps:
A - Defining the objectives of financial statements and
reports B - Defining and selecting accounting assumptions
C - Devising accounting principles D - Developing
accounting procedures and practices based on the
deduced principles
General, that is, it sets assumptions and principles
(generalization)
Private, that is, it is on the company's application
Intermediate or partial theoretical approaches

The medium-range theory is based on four main

approaches that overlap and complement each
other, namely: -
1 - The Ethical Approach
It is the so-called basic standards, which
stipulate the necessity of providing the
conditions of fairness, clarity, credibility,
transparency and truth in financial reports, and
in general, the concept of fairness means that
the accounting statements were not subject to
illegitimate influence or bias. It was stipulated
that the audit reports confirm this, indicating the
integrity of the offer, as follows:
A-Consistent with generally accepted accounting
principles.
b- Disclosure.
C- Consistency.
d-comparison
It is not considered an independent entrance as it must be
available in all accounting theories.
2 - Sociological Approach
The social approach means the social impact of
accounting methods, and it is based on the concept of
social interest, On this basis, certain principles and
techniques of accounting are evaluated for acceptance on
the basis of the effects of their reports on all groups in
society.. It implies that the accounting data will be useful
in making social welfare decisions. This approach also
plays an important role in the assessment and analysis of
social benefit and social cost., an industry may have social
costs and negative effects on society, such as pollution,
for example, much higher than the return.
3 - Economic Approach
This approach depends on the general economic interest,
and it means the transformation of accounting policies
and theories in accordance with the interest of the
national economy and adheres to fixed standards, which
are: -
A- The accounting policies and methods should
adequately reflect the reality and the economic reality.
B - The choice of accounting methods should be based on
the economic results and effects.
4 - The Elective Approach
In general, the formulation of accounting theory and the
development of accounting principles have followed a
selective approach (a mixture of approaches), rather than
just a single school of thought. Therefore, it is the
comprehensive approach or a mixture between the
previous approaches, which is based on a selection from
among the previous approaches to develop an accounting
theory based on the approach. Ethical, social and
economic alike.
The Untraditional to Formulate Accounting
Theory) New approaches(

These efforts to use both conceptual and

empirical reasoning to formulate and verify
an accounting framework. The approaches
are:
Events approach
Behavioral approach
Human Information Processing approach
Predictive approach
Positive approach
1 - The Event Approach
This Approach assumes that the purpose of accounting is to
provide information about all economic events, which may be all
or some of them beneficial to the user. The role of the
accountant is to provide all the information clearly, and it is left
to the user to determine the events that are beneficial to him
and appropriate to his decisions. Based on this approach, the
financial statements must include as many clarifications and
details of the financial events as possible and avoid summarizing
them as much as possible.
2 - The Behavioral Approach
It is based on focusing on the behavior of the individual and the
group that is affected by the communication of information
resulting from the accounting system, and the behavioral
approach focuses on the explanation and prediction of human
behavior for all possible accounting literature, and the main
objective of research in behavioral accounting is to search for
ways and means to improve the comprehensive accounting
system and can divide the research areas In behavioral
accounting as follows:-
A / sufficiency of disclosure.
B / the usefulness of the financial statements data.
C / trends related to the practices and applications
of reporting on the Company.
D / provisions of relative importance.
E / The decision raised the alternative accounting
procedures.
Despite all the efforts exerted by empirical and
survey research in behavioral accounting, it suffers
from a lack of a theoretical and methodological
framework, and therefore the behavioral approach
remains unacceptable for evaluation and
interpretation of results.
-3Human information processing approach
This is comparable to a behavioral approach in that it
focuses on how manipulators interpret and use the
information provided.
4 - The Predictive Approach
The clarification of financial accounting concepts (1) states that
the objective of the financial report is to provide useful and
useful information to investors, creditors and other users in
making rational decisions, as well as clarifying concepts (2)
asserting that forecasting is a cornerstone of the quality of
financial reports, and according to the proposal of the American
Association Committee For accountants, there are four ways to
link between accounting information and decision, which are: -
A / direct forecasting - is done by impartial accountants and
departments in the forecasting model.
b/ Indirect forecasting - which is relying on past data to predict
future events with the necessary adjustments to be made.
C / the use of leading indicators - based on the ability of
accounting data to predict turning points, taking into account
the change in events and its impact on the general indicator.
D / supporting information - and it is used as a predictive
indicator with the specific accounting information in relation to
others.
-5 Positive approach
This can be best clarified by quoting Jensen
(1976), who called for the:
development of a positive theory of
accounting which will explain why
accounting is what it is, why accountants do
what they do, and what effects these
phenomena have on people and resource
utilization.
The approach is based on the proposition
that managers, shareholders and regulators
are rational and that they effort to exploit
their utility.
The theory became known as the Rochester
school of accounting. The positive approach
is totally reverse to the normative approach
and efforts to explain why accounting
procedures and policies are as they are,
whereas the normative approach attempts to
suggest the accounting procedures and
policies to be implemented.
THANKS