Contemporary Issues in Accounting 2e Customised 1st Edition by Craig Deegan Solution manual

will impact various groups. If we only considered how to calculate accounting
numbers, without considering their impacts, then we would be only getting a
Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd
Solutions Manual to accompany Deegan, Financial Accounting Theory 4e
5
fraction of the total ‘story’. People involved in accounting logically need to have
some perspective about how people will react to different accounting numbers or
forms of disclosure; accounting theories can provide us with such insight. Apart
from considering how accounting numbers might impact different groups,
people involved in accounting should arguably understand the different factors
which might have influenced accounting standard-setters when they developed
particular requirements. They should also be aware of research that suggests
improvements to current practices (with such information perhaps being derived
from different normative theories of accounting).
As you will see throughout the textbook, there are various perspectives about
why organisations might adopt particular accounting methods. If we are
ultimately involved in reading financial statements, then understanding the
possible motivations of those in charge of preparing the financial statements will
be useful. For example, some theories suggest that managers will want to use
those accounting methods that provide the greatest benefits to themselves
personally (from Positive Accounting Theory). Other theoretical perspectives
suggest that a reporting entity will be motivated to provide information primarily
to powerful stakeholders (from Stakeholder Theory), or that the managers of
reporting entities provide information to legitimise the entity’s ongoing
existence (from Legitimacy Theory). Chapter 12 of the book provides a
perspective (a critical perspective) that suggests that financial accounting is a
mechanism to further the interests of those people who currently have wealth,
and to undermine the interests of those without wealth. As this brief discussion
shows, there are numerous views about the implications of accounting, and the
factors which cause managers to select one accounting method in preference to
another. Such insights might be useful when interpreting particular accounting
disclosures. If we do not read about accounting theory then these valuable
insights might not be available to us.
1.10  It can be argued that before we can seek to improve the practice of financial
accounting we need to know which methods of accounting are currently being
used. Research which describes what is currently being done as well as
Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd
Solutions Manual to accompany Deegan, Financial Accounting Theory 4e
6
describing the generally accepted conventions is therefore useful to the overall
process of improving financial accounting.
What might not be constructive, however, is where theories are developed
through observing current practice and these observations/theories are then used
to prescribe what all other people should do. Just because the majority of people
are doing something does not necessarily mean that it is the best or most
efficient thing to do. As the chapter emphasises, studying what is does not mean
the same thing as studying what should be. As Gray, Owen and Maunders (1987,
p. 66) indicate, an approach to developing theories on the basis of observing
what is ‘concentrates on the status quo, is reactionary in attitude, and cannot
provide a basis upon which current practice may be evaluated or from which
future improvements may be deduced’.
As the chapter explains, research that provides prescription on the basis of what
is already being done does not tend to be very controversial (for example, the
work of Grady, 1965) and will not tend to generate opposition from the
accounting profession. But again, assuming that what is being done is the best
approach (perhaps on the basis that only the ‘fittest’ survive) is not really
logical.
1.11  Undertaking research based on observing actual practice provides an
understanding of what is being done, although a key point here is: what we
actually observe to be happening, and what we record, might be influenced by
our own values and biases that we have prior to undertaking the research. This
means that researchers with different ‘views of the world’ (perhaps they work
from quite different research paradigms) might actually see things differently;
ask different questions and record different events than would other researchers.
Inductive researchers need to be careful that their own biases do not overly