Essay: Accounting Theories

Sample Essay

The main theme outlined in all articles is closely related to several accounting theories such as positive accounting theory, regulatory theory and economic behavior theory. The fair value accounting standards give managers some discretion regarding the valuation of assets. The positive accounting theory is concerned with the selection of principle and methods by managers in preparing financial statements. The valuation of assets and liabilities under fair value accounting is based on estimation and assumptions applied by managers.

These valuations are completely based on assumptions for level 3 assets and liabilities. This preference is usually based on the outcome of method choice. Managers are motivated to use one accounting method over others as they can derive personal benefits out of these decisions. The application of fair value accounting in measurement of assets and liabilities results in realistic values of assets and liabilities which can be more closely linked with current economic conditions. The managers may use assumptions which either present values which are related to their personal benefits or values which are related to organizational efficiency.

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