Questions On Positive Accounting Theory Essay - 1479 Words

Answer=6 Positive accounting theory explains why any firm uses one type of accounting practice over the other. This theory tries to improve efficiency of the organisation by putting some mechanism for aligning interest of the manager of the firm with the interest of the owner. The objective of this mechanism is to minimise future agency cost. The Positive accounting theory provides guidelines to the firm about selection of accounting policy which is suitable for the firm with respect to efficiency perspective as well as opportunity perspective such as ï‚ § Organisation reaction when they adopt new accounting methods ï‚ § Which accounting policy will be adopted by firm under different circumstances e.g. political and economic ï‚ § Firms can practice greatest prospects for survival, so firms compose themselves all the more proficiently ï‚ § Positive accounting theory expect that managers of the firm select the most effective way to reveal the performance of the entity ï‚ § Intentional audits might be undertaken to reduce the perceived risks of stakeholders ï‚ § Mangers must be flexible when choosing accounting methods for the organisation and its estimates and predications based upon the following points: ïÆ'Ëœ Use that method with which future earning of the firm increase lead to increase in bonuses of the employees ïÆ'Ëœ That shows future earning in current period highlight stability and performance ïÆ'Ëœ In tough conditions managers try to transfer current year profit/ income to reduce tax and otherShow MoreRelated7101AFE Financial Accounting Theory And Practice Essay970 Words   |  4 Pagesï » ¿7101AFE Financial Accounting Theory and Practice Tutorial Questions for Tutorials 1- 6: Semester 1 2015 TUTORIAL 1 - Semester 1 2015 Deegan Topic 1: Introduction to financial accounting theory QUESTION 1 – Question 1.2: If you developed a theory to explain how a person’s cultural background influences how they prepare financial statements, would you have developed a positive theory or a normative theory? 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