Current Issue in Financial Accounting Essay Example

Current Issue in Financial Accounting Essay Example Current Issue in Financial Accounting Essay Current Issue in Financial Accounting Essay People have curiosity over the world, including information such as how it operates. The Information derived from the world can affect peoples behavior. This also holds true In the financial world. However, there has been debate about the approaches that can be taken to increase the understanding of the world. In accounting, the traditional scientific approach, which has enjoyed its monopoly for a long time, is attracting extensive criticism, especially from those who propose an alternative approach (the critical approach). This essay will compare and contrast these two approaches and discuss how they are utilized for accounting research. The eclectic approach (also known as the postvocalic approach) differs from the critical approach significantly in the ontological aspect. Positivists hold the idea that truth is out there to be discovered. For the critical approach, accounting should not be perceived as something objective or indicative of what the real world is (Hooper, Dave, Lancashire ; Prescott, 2008). The information collected by positivists from studies can disclose what Is found to be right In the sampled population but the Information should not be extended to cover a wider range of conclusions. Besides, the world is multifaceted. What appears to be right on one dimension might not be the same in another dimension. Positivists present the idea that information collected is adequate for reaching conclusions, but the critical approach does not consider this adequacy as the strength of the conclusions but as the cause of conclusions fallibility (Humphrey Escapes, 2007). The Impact of social domination provides a strong argument against the notion that accounting is not a natural or precise science. The critical approach has also attacked activism on the drawbacks of the statistical methodology it has developed and relied on. However sophisticated the methodology or the research instrument is, positivism is to varying degrees yielding to researchers subjective analysis, management of interpretation of data (Fleischman, Radcliff ; Shoemaker, 2003). Researchers understanding and deflation of subjects and terminology might also be different (Tinker, 2005). In other words, findings released by the scientific approach are informative to some extent but not entirely reliable. Needless to say, statistic tools are valuable when subjects can be quantified. Economic activities cannot be quantified all the time (Fleischman et al. 2003). For example, it is unlikely to quantify the Impact of the agency cost on accounting figures. The quantification of some elements which are not easily measurable makes the research methodology controversial and unconvincing. In addition to theoretical and subjective matters, the critical approach also suggests that the scientific research undervalues or omits the effect of cultural factors, economic factors, political factors and other external forces that mould accounting practices (Humphrey Lee, 2007). There are two implications for the critical approaches emphasis on the contextual factors that have a bearing on accounting- related research. I nee TLS Implication Is Tanat ten contextual Doctors, wanly are complex and ever-changing, account for why accounting is malleable rather than definite. For instance, the creative accounting theory argues that organizations take various approaches to affect accounting statement users opinions (Siskin ; Schneider, 2008). There can be a complex of factors contributing to this, managers incentives, the fear of investors pessimism, tax obligations, and so forth. Even more important is the fact that in many cases, some factors are overlooked but still of importance to a specific phenomenon. In these circumstances, the scientific approach is fallacious at its root, because the use of statistical tools is not reasonably applicable in accounting, at least not as applicable as it is in physical sciences (Hooper et al, 2008). Due to all these barriers (researchers biases, imperfections of research methods and the ever-changing external environment), an increasing number of scholars have put forward the argument that the scientific approach can never attain its objective of exploring the rules of the world reliably; alternatively, it is a pragmatic tool developed by capitalists to achieve social domination and a tool to relieve the potential intention among different actors in society (Dullard, 1991). This argument is reasonable, either in the past or in contemporary society. Accounting in the early 20th century was used to attract investors attention and investment in new ventures. Today, for instance, the shareholders and the managers do have some interests in conflict, but accounting can serve as a bridge between them and reduce the distrust caused by information asymmetry (Macintosh ; Baker, 2002). Critics of positivism also argue that both accounting and research on accounting are social phenomena, which are ephemeral in nature and cannot be perpetuated (Hogue, 2006). Accounting does not measure and disclose the actual accumulation of wealth in society but merely provides an explanation of resource distribution (Tinker, Merino ; Marker, 1982). Accounting standards change in responses to the changes in the dominating ideology of the society, as suggested by the critical approach. For instance, the importance attached to an organizations intangible sets in recent years leads to the emergence of the balanced scorecard, a brand new performance measurement tool that includes more than an organizations financial performance. These accounting practices were not useful a century ago, where the labor-intensive economy predominated. This kind of examples can pose a challenge on positivism, which is captured by the idea of finding the genuine and perpetual truth of the world. The critical approach also suspects other rationales behind drawing a causal relationship between events in the economic world. There are two possible arguments against this attempt. The first argument is that the causal relationship validated by the scientific approach is in fact fallible (Hogue, 2006). It is satisfactory only because the incidents that prove otherwise have not yet been discerned. Another argument is that even though a causal relationship does exist and accounts for a majority of incidents, the scientific approach does not foresee all elements that can come Into play, nor does It measure ten elements In ten order AT Importance conclusively (Humphrey ; Lee, 2007). For these reasons, attempts to launch scientific research are fruitless and meaningless (Humphrey ; Lee, 2007). The scientific approach is also based on an assumption that everything occurs logically (Hooper et al, 2008). It is too simplistic to lay out this assumption. Humans are always possibly driven by their will rather than rules (Tinker, 2005). For instance, even though accounting practices have been developed to measure an organizations ability to pay off debt, the collapse of banks in the supreme crisis indicates that organizations would overstate their assets rather than be mindful of their liquidity. Therefore, if the irrationality always exists, researchers should not anticipate their search findings to contribute to the effectiveness of the world and identify the best practices. Paradoxically, after the crisis deepened, some countries enacted laws to allow banks to put doubtful debt (which was in fact bad debt) in current assets constantly in order to prevent public panic. This contingency policy is in conflict with some basic accounting standards (treating bad debt as expenses). The scientific research is also theory-laden, which means that it starts from the analysis of existing theories (Hooper et al, 2008). Its attention is concentrated on verifying the relationships presupposed by existing theories. For this reason, it is passive and not friendly to changes. It does not take initiative to introduce new solutions that might become meaningful to meet unprecedented needs and challenges. Despite all these problems of positivism, it is important to note that the critical approach in itself is not a method of research but a method of examining research (Hooper et al, 2008). There is the preposition to associate the critical approach with the qualitative research, a methodology which is also concerned about contextual factors and characteristics of the subject (Tinker, 2005). However, more often than not, qualitative research leads to the establishment of some hypotheses and assumptions which are speculative in nature. Case-based research, another research methodology commonly used in the critical approach, cites exceptions to attack the generalized findings of positivism (Humphrey Escapes, 2007). However, this is also the weakness of the critical approach. The critical approach draws attention to what is wrong or what can be wrong but performs no function in finding what is right (due to the belief that it is unlikely to do so) (Humphrey Lee, 2007). Another problem found in the critical approach is that even though it tries to evade a conclusive answer but attacks a perceived reality, the evidence it brings together is controversial, because of the lack of the use of well-recognized research methods (Morgan Wolcott, 1993). The irony is that the critical research offers some novel perspectives to view some subjects, but these perspectives do not receive more attention unless they are tested by statistic tools (Hogue, 2006). Thats why despite the growing influence of the critical research, positivism still predominates in accounting literature (Hogue, 2006). I nee Ideal AT ten critical approach Is Tanat researchers can evaluate ten accounting system as an outsider. The main rationale behind this is that researchers can detect the problems of the system more easily (Hooper et al, 2008). However, beyond any doubt, researchers have to rely on their knowledge in evaluation. Such knowledge is basically derived from what was found in the scientific approach. It therefore brings attention to the impracticability of the critical approach, as the objective and legitimate critique of the system in which accounting standards develop is impossible (Dullard, 1991). The accounting scandals that have been disclosed in recent years illustrate this point, despite the continued development of standards during the same period. Instead of debating about whether positivism is superior to the critical approach or vice versa, accounting research should recognize their pros and cons and use them with caution. The scientific approach can be adopted to test the validity of some hypotheses or at least to what extent the hypotheses hold, but it should be compensated by the critical approach, which leads people to examine hypotheses from a variety of perspectives (Humphrey ; Escapes, 2007). While positivism gives management or other users of accounting statements convenience in interpreting financial data with a number of shared and generalized understandings of such data, the convenience can be misleading if it does not consider the complexity of variables such as contexts. As Tweeted (2010) states in the article, accounting students should be aware of the circumstances prevailing when analyzing issues and Judgment. Positivists should evaluate their knowledge, assumptions and hypotheses according to the most powerful external forces that are present where the discussion and analysis are carried out. People should also be aware of their own assumptions and beliefs (Hooper et al, 2008). For example, if people assume that current assets of an organization should be more of liquidity than non-current assets, they might need to evaluate what constitutes an organizations current asset. This can be different in different countries and periods of time in a fiscal year. One important lesson that has been learned from the scientific approach is that there should be more than one explanation of an event. There is no point in arguing that one explanation is better than another and then the less satisfactory explanation would be discarded (Hooper et al, 2008). Each explanation has its drawbacks and also its rationality. It can find its Justifications in different contexts. This can help people gain a better and more comprehensive understanding of an event.