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In: Accounting

Explain what is meant by a critical approach to accounting theory. What does this approach seek...

Explain what is meant by a critical approach to accounting theory. What does this approach seek to achieve? Illustrate your answers by describing theories that use such an approach.

(1,000 words essay question)

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Expert Solution

A critical perspective of accounting is a perspective that critically evaluates the role ofaccounting in society. The label critical perspective is a broad term which has been used to describe various theoretical approches. It tends to dismiss mostof accounting as being against the interests of many people in society, and often viewsaccounting as a major contributor to perceived social problems and inequities. A ‘criticalperspective’ considers accounting to be a highly partisan activity and it is generally consideredthat accounting is not a neutral or unbiased process. Accounting theory has great utility for improving accounting practices, resolving complex accounting issues and contributing in the formulation of a useful accounting theory.

The following are the main classifications of accounting theory:

(a) ‘Accounting Structure’ Theory:

‘Accounting structure’ theory, known by different names such as classical theory, descriptive theory, traditional theory, attempt to explain current accounting practices and predict how accountants would react to certain situations or how they would report specific events.

(b) ‘Interpretational’ Theory:

Interpretational theory emphasises on giving interpretations and meaning as accounting practices are followed. This theory provides a suitable basis for evaluating accounting practices, resolving accounting issues and making accounting propositions.

(c) ‘Decision-Usefulness’ Theory:

The decision-usefulness theory emphasises the relevance of the information communicated to decision making and on the individual and group behaviour caused by the communication of information.

Accounting is assumed to be action-oriented—its purpose is to influence action, that is, behaviour; directly through the informational content of the message conveyed and indirectly through the behaviour of preparers of accounting reports.


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