Accounting Theory

What are the advantages and disadvantages of accounting theory? State how that affect
accounting as it is today.

The advantages of accounting theory are:
Identification of the problem area: it narrows the range of problem area by clearly
indentifying the facts to be studied. This helps in selecting the relevant aspects of a
phenomenon

Conceptual fame: It provides a conceptual framework for the study of accounting
problems. Furthermore it presents the frame of reference for the standard with respect to
which accounting practice should be evaluated.

Summarization: It as an organized body of knowledge summarizes concisely what is
already known about the subject.

Uniformity of practice: It aims at providing uniformity in accounting practice, the lack of
which will greatly reduce credibility of accounting.

Predictive ability: Theoretical generalizations can be used to predict further facts. Due to
this predictive ability of accounting theory, a growing body of empirical research has
evolved that can be used for decision making by the users.

Development of new practice: Accounting operates in a dynamic socio-economic
environment. Therefore, with the change in social attitude, economic reality and
improvement in information science, it may be necessary to replace the existing practice
by new one.

The Disadvantages of accounting theory are:
It does not explain all its practices. Due to the utilitarian nature of accounting, many of
the convention and the principles of accounting have been constructed on the basis of
expediency rather than rules of logic.

Accounting is not as strongly oriented towards logical argument as towards utilitarian
service. It is less concerned with deductive generalization that with practical
accomplishments

The concepts and postulates ate not rigorously defined. Some of the fundamental
assumptions of accounting theory are not realistic.

It suffers from internal consistency.

The practical nature of accounting does not lend itself to have a general theory of
accounting such that a high level of generality makes it possible to the applied to all
countries, to all industries and all firms.

The advantages and disadvantages of accounting theory have affected accounting today in that it
have provided a practical application to accounting standards, which provides a foundation that
gives meaning and explains the practice of accounting. Therefore this enhances the performance
of accounting professionals in the working environment.

References:
Maharshi Dayanand University,ROHTAK. Accounting Theory. N.p.: n.p., 2004. PDF.
"Accounting Theory and Conceptual Frameworks." Reading. Web. 30 Jan. 2014.
<www.mdudde.net/books/Mcom/Mcom-f/Accounting Theory-fi...>.