Essay: Normative Accounting Theory

Sample Essay

The normative accounting theory is quite in contrast of the positive theory of accounting as it explains the optimal conditions that should be present instead of what is actually present. The normative theory provides a medium for further research into optimal accounting practices as it is concerned with optimal performance in accounting (Belkaoui 2004).

Managers, investors, creditors and other stakeholders of a company make critical decisions based on information provided by an accounting system and if the accounting system is performing at an optimal level the information provided to these stakeholders would be quite reliable and relevant. Standard setting procedures also require standards setting bodies and boards to consider what accounting practices should be adopted to achieve maximum efficiency and optimal conditions. If accountants and managers are not aware of normative theories they will keep working on current conditions without any effort of achieving efficiency in adequate disclosure of financial information (Porwal 2001).

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