HI6025: Watts and Zimmerman staked a claim to the term - Accounting Assignment

Internal Code: MAS3102

Accounting Assignment:

Watts and Zimmerman staked a claim to the term “Positive Accounting Theory” for their particular theory. This paper considers positive accounting in the broader sense of a research program which aims at developing causal explanations of human behaviour in accounting settings; other examples than, PAT exist in accounting. The ontology and epistemology of such a program is examined. The logic of statistical hypothesis testing, while superficially analogous to Popper’s falsification criterion, is much weaker. Although the broad positivist research program is potentially very powerful, it is being let down by deficiencies in practice. Common problems are the casual construction of theoretical models to be tested, undue reliance on the logic of hypothesis testing, a lack of interest in the numerical values of parameters, insufficient replication to warrant confidence in accepted findings, and the use of theories as lenses to examine qualitative data rather than as explanations to be tested. Illustrations from good papers are considered. As positive research is currently practised in accounting, it seems largely incapable of achieving the scientific objectives. However, Kuhn’s description of “normal” science fits positive accounting research quite well. The prospects are briefly discussed for a Kuhnian crisis and revolution, which might liberate positive accounting to achieve its potential. Questions: (a) Observe carefully and develop preliminary ideas. (b) Develop a formal theory, with testable predictions, that is consistent with all current relevant and reliable empirical evidence. The predictions need not be quantitative, but quantitative predictions are preferred where possible because they are more susceptible to  falsification. (c) Test the predictions of the new theory against new observations in situations where the new and old theories make different predictions. Reject whichever theory fails the test, once the outcome is clear (so that obser- vational errors, for example, cannot be driving the result).