Normative period (1956-1970): Normative Accounting

The period 1956-1970 is labeled as the ‘normative period’ as during this period accounting theorists attempted to establish ‘norms’ for ‘best accounting practice.’ In this period, the accounting researchers were less concerned about what actually happened in practice but more concerned with developing theories that prescribed what should happen in practice. The major focus of normative theorists during this period was the impact of changing prices on value of assets and the calculation of profit owing to the recorded levels of inflation experienced during this period. Two groups dominated the normative period - the critics of historical cost accounting and proponents of the conceptual framework for accounting. The critics of historical cost accounting tried to develop theories of accounting where asset measurement and profit measurement depended on inflation and/or specific price movements. On the other hand, the conceptual framework is a structured theory of accounting, which is meant to encompass all components of financial reporting and is intended to guide the practice. However, normative period began to drawing to an end in the early1970s due to two main reasons: the unlikelihood of acceptance of any particular normative theory and the availability of financial economic principles and testing methods. These factors are associated with the inability to empirically test normative theories as they prescribed what ought to be. Further, these prescriptions are associated with the value judgment of theorists. These factors created general