Accounting Theory Construction

The acceptance of a theory depends on the ability of a theory to explain and predict the validity / logical process of the theory’s construction, and the implication of the theory. There are many different approaches to theory construction in accounting. These approaches differ from each other based on the assumptions they rely on, how they were formulated and their approaches to explaining and predicting actual events. Some of these approaches are pragmatic, syntactic, semantic, normative, and positive.
Pragmatic theory
Pragmatic approaches are based on observing the behavior of accountants or those who use the information generated by accountants. This approach can be mainly divided as descriptive pragmatic approach and psychological pragmatic approach. The descriptive pragmatic approach to accounting theory construction is an inductive approach – it is based on continual observation of the behavior of accountants in order to copy their accounting procedures and principles. Hence, a theory can be developed from observations of how accountants act in certain situations. In contrast, psychological pragmatic approach requires theorists to observe users’ response to the accountants’ outputs such as financial reports. A reaction by the user is taken as evidence that the financial statements are useful and contain information relevant to the users.
Syntactic and semantic theories
Syntactic theories are based on a logical relationship, which has to do with the rules of the language used. This theory relates basic concepts at the abstract level and emphasis on the logical reasoning and not the empirical content of the statement in the real world. It refers to a flow of logic, not to the accuracy of an argument’s representation of the real world. Semantic theory in contrast relates basic concepts of a theory with the real world. Verification is based on the premises and conclusion, not
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on the logical reasoning. Semantics is the study of meaning. It focuses on the relationship between signifiers such as words, phrases, signs and symbols. Thus, a semantic theory provides a framework to specify word meaning.
Normative theories
Normative theories are more concerned with what should be done, rather than with analyzing and explaining what currently accepted practice is. Normative theories developed in 1950s and 1960s, which has been described as the ‘golden age’ of normative research, focused on either on deriving ‘true income’ (profit) for an accounting period or on discussing the type of accounting information which would be useful in making economic decisions (decision-usefulness). True income theorist concentrated on deriving a single measure for assets and a unique (and correct) profit figure. On the other hand, the decision usefulness approach assumes that the basic objective of accounting is to aid the decision making process of certain ‘users’ of accounting reports by providing useful or relevant accounting data.
Positive theories
Positivism or empiricism means testing or relating accounting hypotheses or theories back to experiences or facts of the real world. Positive accounting research first focused on empirically testing some of the assumptions made by the normative accounting theorists. Today, however, the greater amount of positive theory is concerned mainly with ‘explaining’ the reason for current practice and predicting the role of accounting and associated information in the economic decisions of individuals, firms and other parties that contribute to the operation of the market place and the economy.