Positive Accounting Theory free essay sample

The Positive Accounting Theory (PAT) and Legitimacy Theory can be analysed critically for their bias approach of a political and economic perspective disregarding those people without wealth. A critical perspective of accounting is a perspective that critically evaluates the role of accounting in society. It does not consider issues such as what accounting methods should be used in which situations and often views accounting as a major contributor to perceived social problems and inequalities (Deegan, 2001). Critical theorists are those that ignore the whole world of accounting, favouring the interests of those people with wealth of power. However, they focus on the problems in and of society, not debate which methods of accounting should be employed. Accounting to Watts Zimmerman (1990, page 7) Positive Accounting Theory is concerned with explaining accounting practice. It is designed to explain and predict which firms will and which firms will not use a particular method†¦ but it says nothing as to which method a firm should use. We will write a custom essay sample on Positive Accounting Theory or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page It aims to explain and predict the managers’ consequences that are based on his/her choices. Whilst PAT is descriptive and therefore tries to describe what is happening and observe what is happening, this theory is unlike other theories, PAT is the only one that aims to explain and predict. PAT could not achieve explaining accounting practice. This is because PAT assumes that all individual actions are driven by wealth maximisation and self-interest. Critical theorists could argue that PAT could fail in predicting and explaining firms’ behaviour because of the assumptions about the efficiency of markets. PAT looks at a firms’ decisions and what methods they would use and reasons why the firm choose this particular method. Critical theorists may argue that two organisations are the same. Risk is a further criticism that theorists could assess research upon. Different managers have different levels of risk-taking and some decisions are risk adverse while others are risk-neutral. PAT would therefore not be seen as a prediction or explanatory in nature when considering certain decisions in relation to risk. BIBLIOGRAPHY 1. Deegan, D (2000). Financial accounting theory, first edition, McGraw-Hill: Sydney 2. Watts, R. Zimmerman, J. L. (1986). Positive Accounting Theory. Prentice-Hall: New Jersey