TAK: Accounting Theory Construction

The role of accounting

 * Bookkeeping = recordkeeping ==> tujuan akuntansi adalah pencatatan (recording) transaksi
 * Accounting = accountability ==> tujuan akuntansi adalah sebagai bentuk pertanggungjawaban manajemen seberapa banyak revenue, cost yang terjadi selama periode tertentu dan asset yang dimiliki
 * Accounting = information for decision making ==>

if the objective is accountability, we should use historical value not the fair value because. while the role of accounting is to decision making, we should use the fair value.

Objective of financial reports

 * Poor performers
 * Good performers
 * Investors

Accounting Theory
Hendriksen defined accounting theory as:

Logical reasoning in the form of a set of broad principles that (1) provide a general framework of reference by which accounting practice can be evaluated and (2) guide the development of new practices and procedures.

Accounting theory construction

 * 1) Pragmatic approach: observing the practices and techniques of working accountants and then teaching those practices and techniques to successive accountants.
 * 2) Semantic approach: semantics is sometimes referred to as rules of correspondence or operational definitions. it connects symbols, words, terms, or concepts with real-world objects, events or functions and is seen to make a theory realistic. In accounting semantic theory concern it self with the correlation of propositions to objects or events and manifests itself in terms of measurement theories: for example measuring the effects of inflation on assets and liabilities and adjusting the accounts to reflect these adjustments. Theorists in this area argue that by applying these adjustments, the accounts then have semantic content an can be related to the real world (which they see as being market prices)
 * 3) Input semantics -- assigning numbers to the transaction inputs of accounting, e.g. assets, liabilities, revenue, expenses.
 * 4) Output semantics -- testing the outputs of the accounting system against some external reference, e.g increases in profits against share price changes.
 * 5) Syntactic approach: represents the logical relation in the theory. This concerns the rules of the language employed, e.g, the rules of grammar for English or the rules of mathematics for mathematically expressed theory. Syntactical relation are logical connections that cement together and explain the important concepts of the theory.
 * 6) Syntactic theory is one that is capable of testing on the basis that it is valid in terms of its logical consistency.
 * 7) Thus the calculation of accounting profit and determination of asset valuation can be valid in relation to their conformity with rules prescribing the measurement of accounting profit and asset valuations.
 * 8) One example is the operation of summation in the balance sheet. It is a logical rule that, if objects or properties are to be added, they must be alike. However, existing accounting balance sheets aggregate purchase prices which are not alike under the current conditions of changing prices.
 * 9) Many accounting methods are based on certain principles, assumptions, constraints which are formulated as a result of certain agreements between the representatives of the professional accounting community, hich not necessary

Positive theory vs Normative theory

 * Positive theory deals with explaining or predicting what actually happens in the real worlds. They would probaly collect data concerning earnings announcements and analysts' forecasts, and statistically compare the returns for different circumstances: when analysts' forecasts are above, below, or at the amount of profit reported.
 * Normative theory is concerned with prescribing what should be done. One of the issues hich becomes the focus of some normative theorits is how to derive the 'true income' (profit)