Question

Course name: Accounting Theory and Practice

1. Discuss in details the early authoritive and semi- authoritative organizaitonal attempts to develop the conceptual frame of accounting.

Answer 1

In the mid 1930 professional organizations became interested in formulating a theory of accounting. In 1936 a statement was released by American Accounting Association and the objective of this statement is to provide guidance to the recently established SEC. But this was widely criticized by academics due to its more dependence on the historic cost model and the convention of conservatism. Therefore due to its criticism a new statement was developed by the AAA and this statement highlighted the distinction between the current operating performance and all-inclusive concepts of income. In 1938 AIA published a statement of accounting principles and the goal of this statement was to provide guidance to the SEC on the best accounting practices. However the objective was not attained as it was viewed as a defense of accepted practices rather than an attempt to develop a theory of accounting.

In 1940 the AAA published study given by Paton and A.C. Littleton and this study also emphasized on historical cost and it also developed entity theory and described the matching concept. This was later cited as developing a theory that has been used in many subsequent authoritative pronouncements.