Accounting Theory: Missing in Action?

By Cluskey, G. R., Jr.; Ehlen, Craig R. et al. | Management Accounting Quarterly, Winter 2007 | Go to article overview

Accounting Theory: Missing in Action?

Cluskey, G. R., Jr., Ehlen, Craig R., Rivers, Richard, Management Accounting Quarterly


EXECUTIVE SUMMARY What is accounting theory? And where is it? Accounting theory seems similar in some respects to generally accepted accounting principles-we know it exists, but no single source defines and enumerates it. Even in our doctoral programs, where one would expect accounting theory to be studied and promulgated, little evidence exists that accounting theory consists of anything more than a cursory review of current FASB issues or economic transactions and firm value. Based on our recent review of 88 accounting doctoral-granting institutions in the United States, we identify several different approaches to teaching accounting theory that have been or currently are used in accounting doctoral curricula.

Recent corporate and audit failures have involved both accountants and auditors, the very professionals expected to police and stop corporate mugging of the public's investments. These practitioners need accounting theory-a conceptual framework-to guide and inform accounting practice, thus producing transparent reporting, which is the foundation of the investing public's confidence.

Our study surveys accounting theory in doctoral programs. Specifically, the study attempts to identify how doctoral programs define accounting theory and to measure the level of inclusion of accounting theory in each program. Lack of accounting theory (guiding and informing practitioners) in accounting doctoral curricula could indicate a need for change to those curricula. Likewise, presenting accounting theory as anything other than a conceptual framework smacks of following rather than leading accounting practice. Is accounting theory-the basic foundation of accounting-really leading the profession or merely following its practices?

The basic explanation of accounting theory as the conceptual framework for applying accounting principles was debated throughout the last century. The American Accounting Association (AAA) published a series of "Statements of Accounting Principles" in The Accounting Review (1936, 1941, 1948, and 1957) in an attempt to establish a basis for accounting statements and to develop accounting concepts.1 While accounting principles were being debated and developed, accounting theory-which would provide the conceptual framework for application of accounting principles-was allowed to lag.

In 1966, AAA published A Statement of Basic Accounting Theory. To do this, it created the Committee to Prepare a Statement of Basic Accounting Theory, which attempted " establish a foundation of concepts from which particular practices can be judged."2 Later, in 1977, AAA published Statement on Accounting Theory and Theory Acceptance. In it, the Committee on Concepts and Standards for External Financial Reports admitted that "...a single universally accepted basic accounting theory does not exist at this time."3

In the first volume of his five-volume Essays in Accounting Theory, Carl Devine describes accounting theory as "the entire complex of logical rules, primitive terms, semantic rules of correspondence, interpretations, definitions, theorems, etc., necessary to explain ...behavioral or physical observations."4 Thomas Evans defines theory as "a coherent set of hypothetical, conceptual, and pragmatic principles forming a general frame of reference for a field of study."5 Evans refers to William Paton and A.C. Littleton when he defines accounting theory as "a coherent, coordinated, consistent body of doctrine expressing the standards by which corporation accounting may be judged." Both of Evans's definitions are consistent with the 1966 and 1977 AAA publications.

We see that several accounting theorists have defined accounting theory as being a conceptual framework consisting of accounting principles to guide and inform accounting practitioners, educators, and researchers. …

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