Concept of ‘Theory’ and ‘Accounting Theory’

Accounting is usually viewed as a subject that engages in a discussion of techniques and tools that accounting professionals employ in the practice. However, what is not really appreciated is that these techniques and tools employed in the practice have been devised in a systematic and orderly manner to ensure that the practice results in an output, which is useful to those who require the services of accounting professionals. A famous Classical Greek scholar, Aristotle, claimed that practice emerges from theory. Thus, generally speaking, theories provide the reasoned basis for practice. The process of theorizing is designed to obtain an understanding and then provide an explanation of phenomena to serve as the basis for practice. In this context, this chapter explains the need for theory and some of the essential considerations involved in the process of developing theories.

There is no precise definition for theory. The word theory is derived from the classical Greek word meaning ‘viewing, speculation and contemplation.’ A theory is usually defined as a logical combination of interrelated concepts, definitions and propositions that describe a systematic view of phenomena by establishing relations among variables, with the purpose of explaining and predicting the phenomena. However, there are various perspectives as to what is meant by a theory. Hendriksen (1970) defines a theory as “a coherent set of hypothetical, conceptual and pragmatic principles forming the general framework of reference for a field of inquiry.” According to Most (1982) “a theory is a systematic statement of the rules or principles of which underlie or govern a set of phenomena. A theory may be viewed as a framework permitting the organization of ideas, the explanation of phenomena and the prediction of future behaviour.” On the other hand, Choir and Mueller (1984) assert that a theory is

(a) an integrated group of fundamental principles underlying a science or its practical applications;

(b) abstract knowledge of any art as opposed to the practice of it;

(c) a closely reasoned set of propositions derived from and supported by established evidence and intended to serve as an explanation for a group of phenomena; and

(d) an arrangement of results or a body of theorems presenting a systematic view of some subject.