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Accounting is defined as the art of recording, classifying, and summarizing transactions in terms of non-financial character.
Accounting is defined as the art of recording, classifying, and summarizing transactions in terms of non-financial character.
False
One of the roles of accounting is to serve as a historical record of the managers' stewardship of the owners' resources.
One of the roles of accounting is to serve as a historical record of the managers' stewardship of the owners' resources.
True
The first two periods of the stewardship measurement concept involve managers providing initiatives on asset usage.
The first two periods of the stewardship measurement concept involve managers providing initiatives on asset usage.
False
According to Hawes (1972), accounting is considered a language that consists of symbols and grammatical rules.
According to Hawes (1972), accounting is considered a language that consists of symbols and grammatical rules.
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The term 'magic' is listed as one of the roles of accounting.
The term 'magic' is listed as one of the roles of accounting.
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The asset-utilisation period is characterized by managers merely following owners’ directives.
The asset-utilisation period is characterized by managers merely following owners’ directives.
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Numerals and words are examples of symbols unique to accounting.
Numerals and words are examples of symbols unique to accounting.
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Accounting does not provide decision information for stakeholders.
Accounting does not provide decision information for stakeholders.
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Double-entry bookkeeping was first introduced in Spain in the fourteenth century.
Double-entry bookkeeping was first introduced in Spain in the fourteenth century.
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By the fifteenth century, accounting had begun to be used as a tool for management control.
By the fifteenth century, accounting had begun to be used as a tool for management control.
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The specific journals were introduced in the seventeenth century.
The specific journals were introduced in the seventeenth century.
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In the 18th century, the asset is always carried forward at original cost.
In the 18th century, the asset is always carried forward at original cost.
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The 20th century saw the development of accounting methods for complex issues like pensions and inflation.
The 20th century saw the development of accounting methods for complex issues like pensions and inflation.
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Accounting reports are solely focused on conveying financial performance without any influence from political processes.
Accounting reports are solely focused on conveying financial performance without any influence from political processes.
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Managers may lobby for accounting standards that maximize their utility, such as minimizing taxes.
Managers may lobby for accounting standards that maximize their utility, such as minimizing taxes.
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The concept of professionalism in accounting can be used to justify and legitimize business decisions.
The concept of professionalism in accounting can be used to justify and legitimize business decisions.
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Accounting is often viewed as a purely technical field, free from any subjective influences.
Accounting is often viewed as a purely technical field, free from any subjective influences.
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Sleight-of-hand accounting tricks can misrepresent financial statements, making them appear misleading.
Sleight-of-hand accounting tricks can misrepresent financial statements, making them appear misleading.
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Shareholders and creditors generally advocate for accounting rules that limit their control over management.
Shareholders and creditors generally advocate for accounting rules that limit their control over management.
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Accounting information costs are always minimized by using the most complex accounting techniques.
Accounting information costs are always minimized by using the most complex accounting techniques.
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The utilization of resources in accounting reports affects decision-making behavior of both managers and investors.
The utilization of resources in accounting reports affects decision-making behavior of both managers and investors.
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Accounting exists because there is a demand for specialized information from clients and stakeholders.
Accounting exists because there is a demand for specialized information from clients and stakeholders.
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Accounting is perceived only as a technical tool without any ideological implications.
Accounting is perceived only as a technical tool without any ideological implications.
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Accounting is often recognized as a purely objective process that does not support any special interest groups.
Accounting is often recognized as a purely objective process that does not support any special interest groups.
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Hendriksen defines accounting theory as a set of unrelated and random principles.
Hendriksen defines accounting theory as a set of unrelated and random principles.
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The development of accounting theory has been mostly consistent and structured over the years.
The development of accounting theory has been mostly consistent and structured over the years.
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Different depreciation methods are an example of the inconsistencies that arose due to an ad hoc approach in accounting.
Different depreciation methods are an example of the inconsistencies that arose due to an ad hoc approach in accounting.
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Accounting theory is a modern concept that is older than mathematics or physics.
Accounting theory is a modern concept that is older than mathematics or physics.
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Pacioli’s treatise on double-entry accounting primarily focused on explaining the theoretical basis for accounting practices.
Pacioli’s treatise on double-entry accounting primarily focused on explaining the theoretical basis for accounting practices.
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Luca Pacioli is credited with inventing double-entry bookkeeping.
Luca Pacioli is credited with inventing double-entry bookkeeping.
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The work of Luca Pacioli includes a detailed explanation of the basis for recording in double-entry accounting.
The work of Luca Pacioli includes a detailed explanation of the basis for recording in double-entry accounting.
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The terms 'Debit' and 'Credit' were introduced by Luca Pacioli.
The terms 'Debit' and 'Credit' were introduced by Luca Pacioli.
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Pacioli advised that closing the books yearly is especially important for maintaining partnerships.
Pacioli advised that closing the books yearly is especially important for maintaining partnerships.
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The first accounting records date back 3600 years to the Achaemenid era.
The first accounting records date back 3600 years to the Achaemenid era.
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The 'Italian method' of accounting was based solely on Pacioli's principles.
The 'Italian method' of accounting was based solely on Pacioli's principles.
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Three books are used in the Italian method according to Pacioli: memorandum, journal, and ledger.
Three books are used in the Italian method according to Pacioli: memorandum, journal, and ledger.
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The concept of 'Balance Sheets' originated during the Post-Islamic era approximately 1400 years ago.
The concept of 'Balance Sheets' originated during the Post-Islamic era approximately 1400 years ago.
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Academic research in accounting primarily focuses on normative approaches.
Academic research in accounting primarily focuses on normative approaches.
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The conceptual framework was revived in the 1980s to outline the purpose of financial reporting.
The conceptual framework was revived in the 1980s to outline the purpose of financial reporting.
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The joint project between IASB and FASB aims for the international harmonization of accounting practices.
The joint project between IASB and FASB aims for the international harmonization of accounting practices.
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The IFRS conceptual framework advocates recognizing gains and losses in the accounting period they are realized.
The IFRS conceptual framework advocates recognizing gains and losses in the accounting period they are realized.
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Accounting history is relevant only for pedagogical purposes, excluding policy and practice aspects.
Accounting history is relevant only for pedagogical purposes, excluding policy and practice aspects.
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The invention of double-entry bookkeeping is a key event in the historical evolution of accounting.
The invention of double-entry bookkeeping is a key event in the historical evolution of accounting.
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The conceptual framework establishes criteria for evaluating alternative accounting practices.
The conceptual framework establishes criteria for evaluating alternative accounting practices.
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The full context of accounting history includes social, political, economic, and temporal environments.
The full context of accounting history includes social, political, economic, and temporal environments.
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Study Notes
Course Information
- Course title: FAR661
- Subject: Accounting: Theory and Emerging Issues
Topic 1: Introduction to the Accounting Environment - Part 1
- Topic: History of Accounting Theory
- Definition of accounting (per Committee on Terminology of the American Institute of Certified Public Accountants): "the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are in part at least, of a financial character and interpreting the results thereof"
Role of Accounting
- Accounting as a historical record: Provides a history of managers' stewardship of owners' resources, evolving through pure custodial, traditional custodial, and asset-utilization periods. The first two directions are determined by owners
- Accounting as a language: Two components: symbols (numerals, words, debits, credits) and grammatical rules (procedures to create financial data). Translates economic events into understandable words and numbers for users to interpret financial performance, resources, and past transactions.
- Accounting as intra-corporate politics: Reflects and supports values of special interest groups. Shaped by resources and company policies, used for decision-making to enhance and further management aims. Examples include increasing resource allocation to a department by convincing management.
- Accounting as standard setting as politics: Accounting standards are products of political processes rather than technical efficiency. Often, accounting standards serve self-interest and maximize utility of those involved. Example given was managers supporting standards that lower taxes, reduce costs, and increase compensation
- Accounting as mythology: Supports the concept of professionalism to justify, rationalize, and legitimize made decisions.
- Accounting as communication: Decision information - prepared accounting reports to meet needs of users, in turn affecting decision making behavior of managers and investors.
- Accounting as magic: Viewed as a method of deceiving users of reports. (e.g. Enron used accounting techniques to disguise investments)
Accounting as a Recorded History of Stewardship
- Timeline of stewardship evolution: Pure custodial, Traditional custodial, Asset Utilization
- Early periods ("do as instructed") focused on owner-directed asset use
- Later period (asset utilization) focuses on manager initiative to maximize owner asset value
Accounting as a Language
- Two-part system of accounting: Symbols and grammatical rules
- Symbols are unique to accounting—numerals and words and terms
- Used to translate events into words and numbers
- Makes financial data and performance easily understood by various stakeholders
Accounting as Intra-corporate Politics
- Supports the values and needs of special interest groups.
- Influencing company policy
- Improving management aims and enhancing decisions.
- Used to influence resource allocations within an organization. Example mentioned—convincing management to increase resource allocation to one area by highlighting other areas that seem less efficient
Accounting as Standard-Setting Politics
- Accounting standards are outcomes of political processes, not technical efficiency
- Interests guide standard setting rather than just maximizing efficiency
- Standards lower tax burdens, reduce costs for book-keeping, and maximize manager compensations
Accounting as Ideology & Exploitation
- Perceived as ideological means of sustaining and legitimizing social/economic/political arrangements.
- Seen as a myth, symbol, and ritual that promotes social relations between agents.
- Serves as an instrument of economic rationality, a tool of the capitalist system.
Overview of Accounting Theory
- Hendriksen's definition: A coherent set of hypothetical, conceptual, and pragmatic principles forming the general framework for a field of inquiry.
- Logical reasoning in the form of broad principles for evaluation of accounting methods
- Guiding development of new accounting procedures
- Reactive development to solve problems that arise
- Led to inconsistencies in practice (e.g. variations in depreciation methods)
- Accounting standard setting and conceptual framework projects are noted but inconsistent in practice
Overview of Accounting Theory (Continued)
- Accounting theory is a modern concept—compared to mathematics or physics
- Pacioli's work focused on documenting procedures, not explaining underlying theories.
- Development of accounting theory has been mostly unstructured
- Based on practical needs, not deliberate, systematic thinking
- Acceptance of theories is dependent on how well they explain and predict reality—theoretical and empirical construction—acceptance of implications
Development in Accounting Theory
- Pre-1400s (focus on practice): Little written regarding accounting theory
- 1450-1750 (Pre-theory): Development of practice, but not on a systematic theory basis
- 1750-1920s (Formalization of Practice): Existing practices formalized in textbooks and teaching methods
- 1800-1955 (General Scientific): Explanations of accounting practices and development of explanatory frameworks based on real-world observations
- 1956-1970s (Normative): Ideal practice statements, basis for achieving them. Focusing less on observations and more on prescriptions of accounting practices
- 1970s-2000 (Positive): Positive accounting theory as framework for understanding and predicting behavior
- 2000-present (Mixed): Mixed development—combination of positive and normative regulatory theories
Development in Accounting Theory (Specific Time Periods)
- 1494: Luca Pacioli (double-entry bookkeeping).
- 1450-1750: Pre-theory period (Practice focused, rather than systematic theory).
- 1750-1920s: Formalization of practice into textbooks and teaching methods.
- 1800s-1950s: General scientific period (explanations & frameworks, from observations).
- 1956-1970s: Normative period (ideal practice, less observation-based).
- 1970s-2000: Positive accounting theory period (explaining/predicting accounting practices).
- 2000-present: Mixed (positive/normative regulatory theories).
Two Kinds of Double Entry
-
Classification: Focused on maintaining accounting equation, summarizing classification positions, and classifying by debit and credit. For example—Dr Machine (Assets) and Cr Account Payable (Liabilities)
-
Causal: Focused on cause and effect relating to increments/decrements, and debit/credit balances to show the offset of one value by the value of another. For example—Dr Machine (20,000) and Cr Account Payable (20,000)
Topic 2: Introduction to the Accounting Environment - Part 2
- Overview of accounting concepts and principles development (in Malaysia)
- Statutory requirements: Companies Act 1965, Securities Industry Act 1983, Securities Commissions Act 1992, Anti Money Laundering Act 2001, Banking & Financial Institution Act 1989, Financial Reporting Act 1997
- Focus on public and investor relations (Financial and operational performance) and their concerns (Maintaining legal standing, confidentiality)
- Role of Regulators, Enforcement, and Authorities: Reduced information disparity, protection of public interest, and setting/monitoring standards.
- Capital Market Users: Decision-making and concerns regarding relevance and reliability
Accounting Development in Malaysia (Timeline)
- Prior to 1957: Companies Ordinance and amendments
- 1958: Malaysian Association of Certified Public Accountants (MACPA) formed
- 1965: Companies Act 1965 established
- 1967: Malaysian Institute of Accountants established
- 1968: MACPA issued first accounting guidance.
- 1978: MACPA became MIA member
- 1984: First Malaysian accounting standards issued.
- 1985: Amendments to Companies Act (included disclosures requirements)
- 1987: Operations of MIA activated. MIA issued standards
- 1993: Securities Commission established
- 1997: Financial Reporting Foundation (FRF) and Malaysian Accounting Standards Board established
Development of Accounting Concepts and Principles
- Management (1900-1933): Management contribution—emphasized management's initiative, leading to concerns over consistency and focus on tax minimization
- Institutional (1933-1946): Institutions, like SEC and AIA, played major roles
- Professional (1959-1973): Issues with CAP led to establishment of APB and Accounting Research Division
- Politicization (1973-present): Accounting numbers' influence on economic behavior and increasing political elements
Relevant Developments (Accounting Theory)
- Conceptual framework (1980s): Revived, defining nature/purpose of financial reporting
- Criteria to decide between accounting practices
- SACS 1-4 developed
- Joint project between IASB and FASB for development of International Financial Reporting Standards (IFRS).
The Framework for IFRS (International Financial Reporting)
- Move towards accounting practices that provide useful information to investors
- Recognizing gains/losses in accounting periods
- Measurement using exit values
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Description
This quiz covers the foundational concepts of accounting, including its roles and historical significance. Explore the definitions, functions, and evolution of accounting practices from the fourteenth century to modern times. Test your understanding of key terms and principles in this essential field.
