Accounting Theory

Course Code: ACT 322

Credit Hour: 3

Course Group: Specialization Course: Accounting

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Early history of accounting: Prerequisites of double entry-Social Forces-Accounting in antiquity- Emergence of double entry book keeping-Luca Pacioli - Accounting and capitalism - Managerial cost accounting-Professional accounting societies (Kam, 1990, Chapter 1).

Normative Accounting Theory: Nature and scope of accounting: Definitions of accounting-Logic of double entry accounting-Authoritative Bodies-Accounting Theory-Objectives of accounting (Kam, 1990, Chapter 2).

Assets, liabilities, and owners' equity: Assets-Liabilities-Owners' equity (Kam, 1990, Chapter 4) Measurement of assets and liabilities: What do we measure? -Approximations of true value-Value to owner or business-valuation methods, Human resource accounting (Kam, 1990, Chapter 5).

Conventional accounting: Basic Concepts-Defense of historical cost-How objective is historical cost- Criticisms of conventional accounting (Kam, 1990, Chapter 6).

Income: Nature of income, Income under uncertainty, Evidence on usefulness of price level adjusted data, Calculation of income (Kam, 1990, Chapter 7).

Revenue and recognition: Nature of revenue, Recognition of revenue, Analysis of criteria for revenue Recognition, Sales basis of revenue recognition, Exceptions to sales basis, Sale of services, Alternatives to traditional view (Kam, 1990, Chapter 8).

Expense and matching: Nature of expense, Matching, Criticisms of matching, Defense of allocations (Kam, 1990, Chapter 9).

Capital Market-Based Accounting Research:

The role of accounting theory: Nature of theory-. Why accounting theory is important, Evolution of accounting theory. Positive and normative propositions. An outline of methodology (Watts and Zimmerman, 1986, Chapter 1; Brown, 1994, Chapter 1).

Efficient market hypothesis (HMH): The EMH. Some misconceptions about the EMH, Capital asset pricing theory, the economics of accounting information (Hendriksen, 1982, Chapter 4).

Early research on the returns-earnings relation: The predictive ability criterion, Event studies, Statistical significance of the returns-earnings relation (Brown. 1994, Chapter 3).

The earnings response coefficient: The ERC in corporate finance, A narrower concept, What determines the ERC?, Earnings persistence. Earnings predictability, Earnings persistence and risk, Width of the window (Brown, 1994, Chapter 4).

Information transfers: Earnings reports. Management forecasts of earnings, Other areas of information transfer (Brown, 1994, Chaptcr7).

Positive Accounting Theory:

Accounting regulation: EMH and early rationales. Rationales from the economic literature, Two important questions, Responsibility and power. Criticisms of the accounting profession, Approaches to standard setting. Incremental-political view, Politicization of accounting (Watts and Zimmerman.1986, Chapter 7; Kam, 1990, Chapter 18).

The contracting process: The demand for contracts between owner-managers and outside shareholders. The demand for contracts between owner-managers and debtholders, the demand for contracts between professional managers and outside capital suppliers, Theory of the firm, the contracting role of accounting (Watts and Zimmerman. 1986. Chapter 8).

Compensation plans, debt contracts, and accounting procedures: Accounting's role in compensation plans, Compensation plans' effects on accounting. Accounting's role in debt contracts, Debt contracts' effect on accounting, Stock price effects of procedure changes (Watts and Zimmerman, 1986, Chapter 9)

Accounting and the political process: The nature of the political process, the political process's effect on accounting procedures, The size hypothesis - Critique of the analysis, Stock price effects of procedure changes (Watts and Zimmerman, 1986. Chapter 10).

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Recommended Books:

Kam, V. 1990. Accounting Theory. John Willey & Sons. New York.

Brown, P. 1994. Capital Market-Based Research in Accounting: An Introduction. Coopers & Lybrands and Accounting Association of Australia and New Zealand, Melbourne, Australia.

Hendriksen, E. S. 1982. Accounting Theory. Richard D. Irwin, Illinois.

Watts, R. L. and J. L. Zimmerman. 1986. Positive Accounting Theory. Prentice Hall, New Jersey.