Essay: What does Positive Accounting Theory Describe

Sample Essay

The positive accounting theory describes the preference of accountants in selecting specific accounting methods and techniques over others (Hoque 2006). An organisation is presented as a collection of contracts under the positive accounting theory and views the accounting system as a means to development and enhancement of these contracts. Positive accounting theory specifically deals with the actual practices and conditions in accounting and presents a positivistic statement. The knowledge of actual facts is quite necessary for managers in order to be better informed to make useful decisions.

The theory promulgates that managers make decisions based on factual information either for personal benefits or for achieving organisational efficiency. Personal benefits of managers may include increments in compensation and organisational efficiency may be based on increased adequacy in disclosure (Mattessich 2007). The positive accounting theory not only provides a framework for decision making based on facts but also highlights why some decisions are made in place of others and the analysis of this theory enables managers to evaluate their current practices and improve decision making skills.

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