Question

In accounting theory really necessary for the making of accounting rules?

Answer 1

Yes, accounting theory is necessary for making accounting rules. It provides underlying guidance for making the accounting rules.

In my opinion, there is an interesting analogy between “Constitution of a country” and“Accounting Theory.” A country’s constitution provides the foundations and guidance tointroduce and update laws in the country. The political factors, social and economic conditionsand perhaps, several other factors contribute in making laws but the constitution is the mostimportant influence in such effort.

Similarly, accounting theory is the “constitution” in the process of making and changing accounting rules. Other factors, like economic conditions and political factors influence theprocess but the accounting theory provides the foundation in the process.

Accounting theory may also be used to explain existing practices to obtain a better understanding of them. But the most important goal of accounting theory should be to provide a coherent set of logical principles that form the general frame of reference for the evaluation and development of sound accounting practices.