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Positive Accounting Theory (PAT) that popularized by Watts and Zimmerman is one of positive theory accounting. See Hopwood an d . Compare and contrast normative and positive accounting approaches: Definition of PAT: Watts and Zimmerman (1986) defined Pat as a theory that seeks to explain and predicts particular phenomenon. Positive accounting theory uses one of these methods. Positive economic theory and accounting practices are objective and based on fact. Downloadable! 2. Positive accounting theory is one of the basic financial accounting theories. The rise of “creative accounting” practices, an euphemism for hiding some unfavorable financial details and highlighting favorable ones to create an impression of sound financial health has resulted in the accounting profession taking more hits to its credibility. Invalid Assumptions - It relates to the fundamental assumption that all actions are driven by a desire to maximize one's wealth. 623-629, 1988. The positive accounting theory explains the current accounting phenomenon based on certain present or future condition. Prediction of accounting practice means that the theory predicts unobserved phenomena. 3. Accounting Statement: The Origin Of Positive Accounting Theory 1519 Words | 7 Pages. Positive theory describes and predicts human behavior, not to prescribe behavior. Positive theory answers questions about why the world is the way it is, and what will happen if one decides to act one way or another, given certain conditions. It is designed to explain and predict which firms will not use a particular method. Positive Accounting Theory (PAT) is a specific theory within the positivist accounting theories in accounting (hence the capitalisation). The efficiency perspective is taken into Positive Accounting theory as researchers explain how various managers choose accounting methods that show a true representation of the firm's performance. Academics view positive/scientific accounting as the total number of contracts the company has entered. What is the difference between normative and positive accounting theory? Agency theory discusses agency relationships, problems and costs. 6, pp. Positive Accounting Theory (PAT) is related to dealing with such matters such as possibility regarding the choice of accounting policies by firms and in which manner the firms will react to prospective new accounting standards. PAT is concerned with explaining accounting practices. positive accounting literature (Section III). The best defence of positive accounting theory has been provided by Watts and Zimmerman through their various writings, the most recently being Positive Accounting Theory (1986). In relation to this, the existing agency theory breaks down as a positive theory as it does not cater for theory of accounting regulatory development. The three basic hypotheses as outlined by Watts and Zimmerman (1978) underlying PAT are: 1. 'Positive accounting theory can explain the greening of financial accounting disclosure; it can not provide a framework for improving it. ' 3. 4. The concept of positive theory was introduced into the accounting literature relatively recently during 1960s. Such an explanation is necessary for interpretation of empirical associations between variables. College of Business, Hospitality and Tourism STUDIES DEPARTMENT OF ACCOUNTING ACC 706 ACCOUNTING THEORY MAJOR ASSIGNMENT Positive accounting theory NAME: FAMIZA SHAGUFA NISHA (2013112840) ALZARIA FAREEN NISHA (2013112840) Methodology ABSTRACT Literature review … Contract costs involve accounting variables as contracts can be stipulated in terms of accounting information such as net income, and financial ratios. Positive Accounting Theory, abbreviated as PAT aims to examine the positive approach to accounting research as well as contrast accounting practices to Normative Accounting Theories. This theory seeks to explain and predict accounting practice of the company. through the section you wish to be ignored by the examiner. Positive accounting theory PAT was developed, in part, from another theory known as agency theory. It is designed to explain and predict which firms will not use a particular method. Therefore, positive theory, positive accounting theory and Positive Accounting Theory (PAT) are all related but they do not refer to the same thing. The relationship between accounting theory and the standard-setting pro-cess must be understood within its wider context, as shown in Exhibit 1.1. This assignment attempts to evaluate the Positive Accounting Theory's (PAT) ability to explain […] The book discusses the role of theory in empirical work. Positive theory sees the facts to predict what will happen in the future (Gaffikin, 2006). Positive accounting theory seeks to explain and predict actual accounting practices. Some reasons why earnings management is done may include the following: 1. Because the future is uncertain, the facts are needed to predict the future. Positive accounting theory: A useful tool for explanation and prediction, or a body of vacuous, insidious and discredited thoughts. Positive Accounting Theory. The subsequent literature adopted the assump- Designed for the senior/grad level course in accounting theory or advanced topics courses. Political fac- Positive Accounting Theory (PAT) that popularized by Watts and Zimmerman is one of positive theory accounting. Economic conditions have an impact on both political factors and accounting theory. We caution that Exhibit 1.1 is extremely simplistic. Abstract This paper examines some of the accounting ideas that were developed in the late 1940s by an Italian professor, Aldo Amaduzzi, with regards to positive accounting studies and the content of financial statements. Therefore, there is a theory called positive accounting theory that tries to understand manager’s motivations, accounting policy choices, and reactions to different accounting standards. Bonus plans are used to reduce the agency costs of equity. Explain the three types of agency costs and their relationships to each other in the context of: (a) debt contracts (b) equity contracts. Critical evaluation of positive accounting theory towards opportunistic managerial behaviour. There is one reason why positive accounting theory is developing rapidly in this day. In relation to Positive Accounting Theory, because there is a need to be efficient, the firm will want to minimize costs associated with contracts. 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