Accounting theory

Academic accountants tend to bemoan the lack of generally accepted accounting theory.
This is understandable because theory is the stock in trade of academics. Some ‘practical’
accountants are probably rather pleased that there is no generally agreed theory of account-
ing because such practical people are suspicious of theory and theorising as they believe that
it gets in the way of ‘real work’. However, those who take this view are probably ignorant of
the role that theory can play in practical matters and do not realise that an absence of theory
does give rise to many real and practical difficulties.



Expressed in this way, it is obvious that the function of theory is to assist in the resolution of
practical problems. The existence of a theory would mean that we could say and explain
why, given a number of assumptions, method X (perhaps current cost accounting) is to be
preferred to method Y (say historical cost accounting).
There have been numerous attempts to construct a theory of accounting.
.In the early
stages of development an inductive approach was employed. Thus the practices of accountants were analysed in order to see whether patterns of consistent behaviour could be derived
from the observations. If a general principle could be observed, then procedures which deviated from it could be castigated as being unsound. These first attempts were mainly directed
towards the establishment of explanatory theories, i.e. theories which explained why certain
rules were followed.