Positive Accounting Theory Essay

9637 words - 39 pages


Positive Accounting Theory and Science

Journal of CENTRUM Cathedra ™

Positive Accounting Theory and Science
by M. Humayun Kabir Senior Lecturer, Faculty of Business Auckland University of Technology, Auckland, New Zealand

This paper examines the development of positive accounting theory (PAT) and compares it with three standard accounts of science: Popper (1959), Kuhn (1996), and Lakatos (1970). PAT has been one of the most influential accounting research programs during the last four decades. One important reason which Watts & Zimmerman (1986) have used to popularize and legitimize their approach is that their view of accounting theory is the same as that ...view middle of the document...

At the same time, they also seek to explain the economics-based empirical literature in accounting and they describe, in addition to accounting choice studies, capital market-based accounting research. They point out that Ball and Brown (1968) initially popularized positive research in accounting, suggesting that PAT includes both capital market-based accounting research and research in accounting choices. This paper takes PAT to include both research programs. This usage is consistent with Watts and Zimmerman’s (1986) assertion that when they use the term “positive” to differentiate it from “prescriptive” theory.

Positive Accounting Theory and Science


PAT has been one of the most influential accounting research programs during the last four decades. It has spawned a great deal of empirical research on the association between accounting numbers and stock prices and returns, and determinants of accounting choices by management. It has spawned a number of accounting journals, among which the Journal of Accounting and Economics is the most prominent. Brinn, Jones, and Pendlebury (1996), in a survey of UK academics’ perceptions of journal quality, found that the top four accounting journals are the following: Journal of Accounting and Economics, Journal of Accounting Research, the Accounting Review, and Accounting, Organizations and Society. Articles published in the top three journals are predominantly in the positive tradition. The sheer number of articles in these two paradigms published in major accounting journals and the dominance of PAT in PhD programs in US and other universities testify to the dominant position of PAT. Thus, judged by the number of research articles, the number and dominance of the journals it spawned, and the dominance of PAT in doctoral programs, PAT has been immensely influential. Before the emergence of PAT, normative accounting research had been the dominant research tradition in accounting. Normative accounting theorists had been preoccupied with developing accounting principles1. The primary concern of these researchers had been recognition and measurement issues in accounting. Typical accounting questions asked and answered by normative accounting theorists include whether to recognize changes in market prices if the entity is not a party to the transaction, what basis (e.g., historical cost, market value, etc.) to use in preparing financial statements, etc. (Chambers, 1966; Ijiri, 1975; Littleton, 1953; MacNeal, 1939; Paton & Littleton, 1940). In contrast with normative accounting theory which deals with “should” type questions, PAT deals with “is” type questions. Instead of asking which measurement basis to use in accounting, PAT asked, for example, whether accounting information is useful to the stock market, which accounting measurement basis management actually uses, and why. Thus, PAT represents a major shift in accounting research paradigm. One important comparison to which Watts and Zimmerman...

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