3101AFE- Introduction to Financial Accounting Theory

Task:

Topic 1 Introduction to Financial Accounting Theory

Question 1:

Is the study of financial accounting theory a waste of time for accounting students? Explain your answer.

Question 2:

Why would it not be appropriate to reject a normative theory of accounting because its prescriptions could not be confirmed through empirical observation?

Question 3:

If you developed a theory to explain how a person’s cultural background influences how they prepare financial statements, would you have developed a positive theory or a normative theory?

Topic 5:  Normative theories of accounting: the case of conceptual framework projects

Question 4:

What is the difference between an accounting standard and a conceptual framework of accounting?

Question 5:

Hines (1991) states that ‘in communicating reality, accountants simultaneously create reality’. What does she (Hines, 1991) mean?

Question 6:

(a)How are Liabilities frequently measured?

(b)How are assets measured? Give some examples to demonstrate the different measurement basis that can be applied to assets or are mandated to be applied by accounting standards.

(c)How are income and expenses defined?

(d)How does the measurement of assets affect the amount of income and expenses recognised?

(e)In your opinion:

I.which measurement basis is more relevant- historical cost or fair value? Explain your choice.

II.which measurement basis is more verifiable- historical cost or fair value? Explain your choice.