Questions and Answers
What is the central assumption of Positive Accounting Theory (PAT)?
Managers are motivated by self-interest and seek to maximize their own utility.
What is the perceived role of accounting in minimizing the transaction costs of an organization?
To reduce the need for contractual agreements.
Why can an organization be usefully referred to as a 'nexus of contracts'?
To illustrate the complex web of formal and informal agreements within the organization.
What influences management's accounting policy choices according to Positive Accounting Theory (PAT)?
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What is the primary reason for the existence of 'creative accounting'?
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