Financial Accounting Theories: Questions and Answers

Financial Accounting Theories Questions and AnswersIn the nature of system, a positive theory of report or Positive Accounting Theory is a descriptive theory, which describes detail aspects of monetary score practice. It seeks to predict, observe, and explain which accounting methods accountants lead or will not use in particular circumstances and why managers and/or accountants elect to adopt particular accounting methods in preference to others. While a normative theory of accounting is a prescriptive theory, which prescribes how accounting should be undertaken. It generates guidance about what accountants should do. It seeks to tell accountants which accounting method in practice is the near efficient or equitable accomplish and hence, which accounting method accountants should use.In the concept of theory, a positive theory of accounting is developed by inducive reasoning that is, through mirror images. The theory developed is based on observing what accountants do. Wh ile a normative theory of accounting is developed through deductive reasoning that is, legitimate reasoning. The theory developed is based more on the use of logic that is, what accountants should do rather than observation.If a normative theory of financial accounting has been developed to prescribe how we should do financial accounting, is it possible that we screwing decide to reject the theory because we do not with agree with a primeval assumption of the theory ( much(prenominal) as an assumption about the objective of financial reporting), but at the same time decide that the theory is nevertheless logical? Explain your answer.Yes, we can reject a theory even that the theory is logical. For instance, the capital markets that we use as an assumption atomic number 18 efficient. Besides that, individuals ar cause by self-interest bind together with the wealth maximization. It might lead us to buzz off particular prescriptions about what information organizations should pro duce. Self-interest means a core belief about what motivates individual action. However, we might consider that the prescriptions appropriated by the theory are unsound and potentially even negative impact to particular groups within society if we reject these assumptions. In short, we might even to believe that the theory is logically developed.Is the study of financial accounting theory a unwarranted of time for accounting students? Explain your answer.In my opinion, the study of financial accounting theory is not a waste of time for accounting students. In fact, it is valuable for accounting students to study and understand financial accounting theories. This is because accounting theories aim to provide a coherent and systematic frame survive for investigating, understanding and/or growth various accounting practices. The evaluation of individual accounting practices is likely to be much more effective if the person evaluating these practices has a thorough grasp of account ing theory. Without a thorough theoretically certified understanding of accounting, it is difficult to evaluate the suitability of current accounting practices, to develop improved accounting practices where current practices are unsuitable for rapidly changing business situations, and to defend the reputation of accounting where accounting practices are wrongly blamed for causing companies to fail. Hence, the insights from a varied string of accounting theories are essential to the process of continual improvement in financial accounting practices.In addition, students of financial accounting will also be call for to learn how to construct and read financial statements prepared in conformity with various accounting standards and other professional and statutory requirements. In their work life, whether or not they choose to specialize in accounting, they could be involved in such activities as analyzing financial statements for the purpose of making particular decisions, diges t financial statements for others to read, or generating accounting guidance or rules for others to follow. As such, the better they understand the accounting practices underlying these various activities, the more effective they are likely to be in performing these activities and therefore, the better equipped they are likely to be to succeed in their chosen career.Explain the meaning of the following separate and evaluate the logic of the perspective describedIn generating theories of accounting that are based upon what accountants actually do, it is assumed (often implicitly) that what is done by the majority of accountants is the most give up practice. In adopting such a perspective there is, in a sense, a perspective of accounting Darwinism a view that accounting practice has evolved, and the fittest, or perhaps best, practices have survived. Prescriptions or advice are provided to others on the basis of what most accountants do, the logic being that the majority of account ants must be doing the most appropriate thing.From slightly the 1920s to the 1960s, theories of accounting were normally developed on the basis of observation of what accountants actually did in practice. They were developed by the process referred to as sense. This can be contrasted with a process wherein theories are developed by deductive reasoning which is based more upon the use of logic rather than observation. Besides, returning to the use of observation to develop generalisable theories is based on the common practices which were codified in the form of conventions of accounting after observing what accountants did in practice.These approaches of the theories were adopted by Notable theories, which blow-by-blow observation of accounting practice revealed patterns of consistent behaviour. For example, it could be ascertained that accountants tended to be very prudent in measuring both revenues and expenses. Where judgement was necessary it was observed that accountants usua lly underestimated revenues and overstated expenses. The result was a conservative measure of profit.Similarly, it could be observed that accountants behaved as if the value of money, which was the unit of account, remained constant. These observations of accounting practice led to the grooming of a number of hypotheses such as that where judgement is needed, a conservative procedure is adopted and that it is assumed that the value of money remains constant. These hypotheses were confirmed by many observations of the behaviour of accountants.While there was a general shift towards prescriptive research in the 1960s, some research of an inductive nature keep mum occurs. Research based on the inductive approach has been subject to many criticisms. For example, Gray, Owen and Maunders (1987, p. 66) state that studying extant practice is a study of what is and, by definition does not study what is not or what should be. It therefore concentrates on the status quo, is reactionary in at titude, and cannot provide a basis upon which current practice may be evaluated or from which future improvements may be deduced.What role do values judgments have in determining what particular accounting theory a researcher might elect to adopt to explain or predict particular accounting phenomena?Value judgements have a major power to make with what theory a researcher might elect to use to explain or predict particular phenomena. These indicate that, we must consider the particular accounting theory researchers might use to explain the companies elect to produce information about their social and milieual execution of instrument. In case, I believed that company managers are incite by self-interest. At that time, I would embrace a Positive Accounting Theory. A Positive Accounting Theory has self-interest as one of the implicit in(p) assumptions about what drives human behaviour. These people would have a trend towards believing that all human practise. The activities inclu de the disclosure of social and environmental information. This means that, it is undertaken to the limits that the activity can be related back to positively impacting the managers wealth.Besides, it typically requires people of current generations to offer current consumption to extent it is in the interests of future generations if I was a researcher who holds a vision of sustainable education. In this way, I would reject Positive Accounting Theory as self-interest and sustainable development are to mutually exclusive. For example, researcher would embrace another theoretical perspective such as legitimacy theory. However, there are no researchers in the field of battle of social and environmental accounting enfolds Positive Accounting Theory although it is interesting to note that.Marks and Spencer Human imagery ManagementMarks and Spencer Human Resource ManagementCompany ProfileMS made a humble beginning as a single market stall and have heavy(p) to start out one of the UK s leading retailers of clothing, food, home products and financial services. MS employs 68,000 employees over 30 countries, has more than 500 stores and cater tens of millions of customers each and every week.MS is move to provide superior quality products and that too at attractive prices. MSs turnover is 8 billion.ValuesSuccess story of MS has been built on a number of core company values that have remained almost unchanged. These values areQuality Delivering excellent standards consistently.Value Delivering exceptional value to customers.Innovation assume to continue to be at the forefront of innovation in both general merchandising and food.Trust The most trusted retailer. MS have a proud heritage of staff welfare, customer care and involvement in the community.Service They are committed to deliver the best services to customers.Valued Employees portion to the business is rewarded.Fairly treated Employees are respected and valued, whoever they are.Proud Employees take pride i n everything they do.Committed To delivering great customer service.Involved Employees are informed of new developments and kept up-to-date with the progress of the company.Challenged Employees challenge each other constructively every day and work at wax potential.From the above mentioned points it is neaten that quality of Human Capital at MS forms the basis of their values.Its all about creating a working(a) environment that encourages people to add to their skills, and where theyre provided with everything they need to fulfil their potential.(Belinda, HR Head, MS)HR Policies and RulesService RulesPromotion Policy RulesAny opportunities for promotion are open to all and depend on ability, skills and experience.Wage Structure for each one job is positioned within a reward level according to level of responsibility and market value. This enables MS toProvide competitive salaries for each job winning into account market rates.Reward everyone according to their contribution.Pa yment is by BACS (Bankers Automated Clearing System) so it goes straight into employees account.How pay is calculatedIf a person is on an hourly rate of pay, monthly pay is calculated as followsStore administered employees(Hourly rate x minimum agreed weekly committed hours x 52.25)/12Head Office administered employees(Hourly rate x minimum agreed weekly committed hours x 52)/12For those on an annual net profit, the calculation isAnnual salary/12* The Company reserves the right to suspend pay where an employee fails to notify about absence from work.Employee motivation welfare schemesReward PoliciesMarks Spencer believes in share-out its progress and profitability and reward accordingly. They offer a range of benefits which are service-related, so they build up as service of an employee increases. Each element of the benefits software is reviewed regularly to ensure it remains competitive and maintains Marks Spencer as a leading employer. Some of them areEmployee DiscountCar Al lowance healthcare OffersMS offers following healthcare options to all monthly paid employees and their partnersPrivate health insuranceDental plan insuranceHospital Saving Association (HSA). cash in ones chips ExpensesTravel is an integral part of work for many people. Marks Spencer offers travel options and expenses so employees can travel in a secure and comfortable manner. affectionate ActivitiesThe Company provides a grant each year for sports and social activities which are organised at business unit/store level.FreesharesSharesave SchemesSharesave allows to save tax-free for 3 to five years and at the end of that period employee can buy Marks Spencer shares at a specially discounted price.Season Ticket LoansCateringThey provide a subsidised catering service for all employees.Lifestyle OptionsMS provides following options and benefitsFlexible working Including a range of optionspart-time working, job sharing, term-time workingUnpaid special give-up the ghost up to nine months. If an employee have two years continuous service and the timing fits with the operation of the business , he can take up to nine months unpaid leave.Paid special leave In case of serious personal difficulties, e.g. where a child is hospitalized.Unpaid leave up to 48 hours.Political appointments If an employee has a minimum of five years service, a break of five years is available for all who are indirect request to become candidates for any UK or European parliament or assembly.Public duties/involvement in local community In case of any other public duties to attend, an employee can speak to his line manager for adjustments.Justice of the Peace or develop governor If an employee intends to become, a Justice of the Peace or school governor, adjustments are made in the working hours.Armed Forces Volunteer Services Offer a period of paid leave to volunteers and ex-service men and women who are required to go on annual training exercises.Confidential helpline A 24-hour c onfidential support service which help employees to manage stress, personal, traumatic or financial issues which are affecting their attendance or performance at work.Maternity, Adoption, Paternity and Parental Leave entitlements.IVF Provide support if an employee or his/her partner is having IVF treatment.Fostering Support is provided if an employee is considering to become a foster parent.wellness safety rulesMS is committed to ensure the health, safety and well being of all its employees, customers and others who visit or work in their premises.MS Policy on Health and sentry go includesThe Health Safety CommitteeIt advises on health safety policy, monitors its effectiveness and reviews key performance measures on a quarterly basis. The information is provided by the Fire, Health Safety military officer Network Groups which also meet quarterly. Information from each location is exchanged with Fire, Health Safety Officers at Business Involvement Group Meetings (BIG).The St ore/Site ManagerThe Store/Site Manager is responsible for ensuring with Fire, Health Safety Officer that Company Health Safety Policy is implemented. This includesSuitable Induction and Legislative Update training for Fire, Health Safety.The prevention, investigation and the reporting of accidents.The completion of ongoing risk of infection Assessments and maintenance of known hazard information.The Fire, Health Safety Officer (FHSO)He assists the Managers and works closely with the Central Retail Operational Support Fire, Health Safety team.Business Involvement Groups (BIGs)It represents all employees in a two way communication. They discuss health safety policy, performance and implementation as an agenda spot at each meeting and update the business through the FHSO Networks.Retail Operational Support GroupThis group is responsible for determining and monitoring the Fire, Health Safety Risk Assessments, work practices and enforcement measures.Property, Development and Fac ilities ManagementThey are responsible for the provision of working areas, equipment and materials that are safe and dont pose any risk to health.occupational Health ServicesUnder this, they provide advice and support to line managers on managing the impact of work on health, and health on work.It creates to safe, secure and pleasant working environment for employees.Training and developmentPersonal DevelopmentLearning career developmentMS is committed to develop its employees into skilled, customer-focused, enthusiastic and motivated employees. They do this through training, developing the necessary skills and knowledge to perform effectively and fulfill potential. An employee is equally responsible for learning and development. One should actively identify training and development need by recognising strengths and weaknesses.Proper formal training consisting of coaching and practical on-the-job experience, supported by a widerange of learning resources is provided. Training is disposed as and when required e.g. the implementation of new systems.Employees with disabilitiesMS help disabled employees to realise their full potential and provide them with the same career prospects and promotional opportunities that are available to all employees. In addition, they are provided with the retraining, rehabilitation and reasonable adjustments for those who become disabled during the course of working life.Review of performanceLine managers review performance continually in order to assess how a particular employee is doing. It helps employee in assessing themselves and look for further development.Managing DiversityMarks Spencer have a diverse range of employees and are committed to an active Equal Opportunities Policy. This doesnt just cover recruitment and selection procedures, but runs right through training and development, appraisal, promotion opportunities and eventually to retirement.MS is highly dedicated and committed to promote an environment free from discrimination, harassment and victimisation and work hard to ensure everyone is offered equality of opportunity to achieve their full potential. All the decisions are objective, free from bias and based solely upon work criteria and individual merit.Highlights of Equal Opportunities Policy arePromote a working environment free from discrimination, harassment and victimisation on the basis ofgender, sexual orientation, marital or civil partnership status, gender reassignmentrace, colour, nationality, ethnic or national origin,hours of workreligious or political beliefsdisabilityageAdequate concern is shown towards individuals personal circumstances and the needs of the business in order to find solutions to such issues. Reasonable adjustments are made to ensure that disabled workers or applicants are not placed at a substantial disadvantage by a practice or policy that exists at MS. Proper help is provided to people with disability or who have learning difficulty to complete the app lication process online and also in telephone assessment.