Join now. In adopting the decision usefulness theory or approach, two major aspects or questions must be addressed. The first approach examined the main factors that determine the collection, classification, and summarisation of accounting data. These reasons make up the theory. This objective statement is a premise which most people seem to find acceptable, subject to slight variations. Devine’s critical remarks in 1960 expose the failure of accountants to examine user behaviour empirically before that time: “Let us now turn to … the psychological reactions of those who consume accounting output or are caught in its threads of control. Let us deal here with the traditional approach. The corporate executives search accounting theory which better explain the relationship between external annual reports and share prices. Fundamentals of Business Mathematics & Statistics, Fundamentals of Economics and Management – CMA, Cash is coming in            Suryani is the giver, Machinery is coming in      Cash is going out, Goods are coming in         Romil is the giver, Cash is coming in              Goods are going out, Wages are an expense            Cash is going out, Romil is the receiver            Cash is going out. Normative methodology, popularly known as normative theory also, attempts to prescribe what data ought to be communicated, and how they ought to be presented; that is, they attempt to explain ‘what should be’ rather than ‘what is.’ Financial accounting theory is predominantly normative (prescriptive). Ball and Brown, Beaver, and Gonedes consistently observed abnormal returns in conjunction with the announcement of the annual earnings number. For example, “given the set of conditions A, alternative D should be selected,” is a normative proposition. In accounting it is true that many theories, approaches, opinions, have been proposed and supported. Judgmental classification is a classification based on the consideration of researchers. The user supplies the other ingredient: the objective and the function that provides the effect of variables on that objective (the objective function).”, “….it is sufficient to recognise that both normative and positive approaches to theory development and testing are valuable. Such theories relating to the structure of accounting can be tested for internal logical consistency, or they can be tested to see whether or not they actually can predict what accountants do. They are guided in this by accounting theory. Probably the greatest disadvantage of ethical approach to accounting theory is that it fails to provide a sound basis for the development of accounting principles or for the evaluation of currently accepted principles. The second approach examined the relevance of financial statements to decision-making using laboratory experimentation. Accounting theory is flexible to incorporate changes in the scenario. Classification of accounting theory Get the answers you need, now! classification of information as management accounting information and financial accounting information is discussed. These people then use the accounting information to make business and investment decisions. This is particularly true of the ethical approach; defining it as a separate approach does not necessarily imply that other approaches do not have ethical content, nor does it imply that ethical theories necessarily ignore all other concepts. In such a case, changing accounting procedures would not necessarily produce a share price effect. Define with Explain it each one Concept of Financial Accounting Discuss the topic, Financial Accounting – Meaning, Definition, Nature, Scope, and Disadvantages of Limitations. ekta8044 ekta8044 26.05.2019 English Secondary School +5 pts. Under the events approach because of a disaggregation of data provided to users, the data are expanded.

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