Accounting Theory, Conceptual Issues in a Political and Economic
Environment 8e Harry Wolk James Dodd John Rozycki (Instructor
Manual All Chapters, 100% Original Verified, A
+ Grade)
Accounting Theory, Conceptual Issues in a Political and Economic Environment 8e Harry Wolk James Dodd John Rozycki (Instructor Manual
All Chapters, 100% Original Verified, A
, Accounting Theory, Conceptual Issues in a Political and Economic Environment 8e Harry Wolk
James Dodd John Rozycki (Instructor Manual All Chapters, 100% Original Verified, A
+ Grade)
Chapter 1: An Introduction to Accounting Theory Instructor’s Manual
CHAPTER HIGHLIGHTS
The chapter is concerned with what accounting theory is and where it fits within the “structure”
of financial accounting. The definition of accounting theory used in this chapter is broad and
complements the objectives of the text. Theory itself helps to explain and predict phenomena
that exist in a given field, and this likewise holds true in accounting. In accounting, theory can be
developed in response to needs arising from practice, including concepts such as realization
and matching. However, as an “infrastructure” has developed in financial accounting, theory is
formulated in a more institutionalized way by means of the research process.
Along with political factors and economic conditions, accounting theory contributes to the
standard-setting process. The process of developing standards or making rules is itself largely a
deductive process and is certainly concerned with accounting theory.
The relationship of theory to measurement is very important. While some see measurement as
closely related to but separate from theory (as we did in earlier editions), its importance relative
to theory is so great that we now consider it to be part of theory. Measurement is the assignment
of numbers to the attributes or properties of objects being measured. The different types of
measurements and the quality or “goodness” of measurements are examined. The latter
embodies (1) the usefulness of the measurement, illustrated here in a predictive context but
showing up later in an assessment mode and (2) verifiability or objectivity, which is the degree of
consensus among measurers in the statistical sense.
The various valuation models are presented in Appendix 1-A. The models come under the scope
of accounting theory. In addition, the different models are mentioned in several theory chapters
before being discussed in depth in Chapter 14. Even if there is no desire to go further into
inflation accounting in Chapter 14, it is important for students to gain a rudimentary grasp of the
concepts involved, as illustrated in Appendix 1-A.
QUESTIONS
Q-1 What does the term “social reality” mean and why are accounting and accounting theory
important examples of it?
Accounting Theory, Conceptual Issues in a Political and Economic Environment 8e Harry Wolk James Dodd John Rozycki (Instructor Manual
All Chapters, 100% Original Verified, A
, The term social reality pertains to the measurement of social phenomena and the use of these
measurements. The measurements may be representationally faithful (low in bias) and have a
high degree of objectivity (verifiability). Or the opposite for either or both of these qualities may be
the case. The important thing to grasp, however, is that important consequences stem from the
measurement, whether they are “good” or “bad.” For example, an excellent year in terms of
income could cause management to be highly rated by shareholders and other interested parties,
resulting in high management bonuses, or provide increased dividends to shareholders. All of
this could occur even though income is a “construct”: not a “real” factor but a conceptual
artifact.
This example shows why accounting is an important area relative to social reality measurements
and constructs. Hopefully, accounting theory can improve the fairness and usefulness of these
measurements.
Accounting Theory, Conceptual Issues in a Political and Economic Environment 8e Harry Wolk James Dodd John Rozycki (Instructor Manual
All Chapters, 100% Original Verified, A
, https: https://www.stuvia.com/user/nursecare//www.stuvia.com/user/nursecare
Chapter 1: An Introduction to Accounting Theory Instructor’s Manual
Q-2 Why do the value choices (entry value, exit value, and historical cost) fall within the
domain of accounting theory?
These are examples of different concepts involved with measuring income which have different
underlying purposes. These different purposes—which affect social reality—are discussed in the
appendix.
Q-3 Of the three inputs to the accounting policy-making function, which do you think is the
most important?
Of the three inputs (economic conditions, political factors, and accounting theory) to the policy-
making function, economic conditions is clearly the most important input. Economic conditions
can easily influence the accounting theory track as well as the policy-making function. Inflation,
for example, in the USA during the 1970s and 80s triggered a significant amount of theoretical
work. Theory responded to the actual economic environment. Another prominent example of
the influence economic conditions has is the merger and acquisition wave of the 1960s, which
lead to APB Opinion Nos. 16 and 17. Many other standards have also been triggered by
economic conditions.
Q-4 How can political factors be an input into accounting policy-making if the latter is
concerned with governing and making the rules for financial accounting?
Those who are affected by the rules will usually try to influence what those rules will be. The
investment tax credit provides an excellent example. When APB Opinion No. 2 did not allow
flow through, lobbying led to APB Opinion No. 4, which did allow immediate recognition in
income of investment tax credits. The stock option battles of the 1990’s (and continuing today)
is another example of the political process and its effect on rule-making. From a predictive
standpoint, we are concerned with how and why political factors play a role in the standard-
setting process.
https://www.stuvia.com/user/nursecare
Environment 8e Harry Wolk James Dodd John Rozycki (Instructor
Manual All Chapters, 100% Original Verified, A
+ Grade)
Accounting Theory, Conceptual Issues in a Political and Economic Environment 8e Harry Wolk James Dodd John Rozycki (Instructor Manual
All Chapters, 100% Original Verified, A
, Accounting Theory, Conceptual Issues in a Political and Economic Environment 8e Harry Wolk
James Dodd John Rozycki (Instructor Manual All Chapters, 100% Original Verified, A
+ Grade)
Chapter 1: An Introduction to Accounting Theory Instructor’s Manual
CHAPTER HIGHLIGHTS
The chapter is concerned with what accounting theory is and where it fits within the “structure”
of financial accounting. The definition of accounting theory used in this chapter is broad and
complements the objectives of the text. Theory itself helps to explain and predict phenomena
that exist in a given field, and this likewise holds true in accounting. In accounting, theory can be
developed in response to needs arising from practice, including concepts such as realization
and matching. However, as an “infrastructure” has developed in financial accounting, theory is
formulated in a more institutionalized way by means of the research process.
Along with political factors and economic conditions, accounting theory contributes to the
standard-setting process. The process of developing standards or making rules is itself largely a
deductive process and is certainly concerned with accounting theory.
The relationship of theory to measurement is very important. While some see measurement as
closely related to but separate from theory (as we did in earlier editions), its importance relative
to theory is so great that we now consider it to be part of theory. Measurement is the assignment
of numbers to the attributes or properties of objects being measured. The different types of
measurements and the quality or “goodness” of measurements are examined. The latter
embodies (1) the usefulness of the measurement, illustrated here in a predictive context but
showing up later in an assessment mode and (2) verifiability or objectivity, which is the degree of
consensus among measurers in the statistical sense.
The various valuation models are presented in Appendix 1-A. The models come under the scope
of accounting theory. In addition, the different models are mentioned in several theory chapters
before being discussed in depth in Chapter 14. Even if there is no desire to go further into
inflation accounting in Chapter 14, it is important for students to gain a rudimentary grasp of the
concepts involved, as illustrated in Appendix 1-A.
QUESTIONS
Q-1 What does the term “social reality” mean and why are accounting and accounting theory
important examples of it?
Accounting Theory, Conceptual Issues in a Political and Economic Environment 8e Harry Wolk James Dodd John Rozycki (Instructor Manual
All Chapters, 100% Original Verified, A
, The term social reality pertains to the measurement of social phenomena and the use of these
measurements. The measurements may be representationally faithful (low in bias) and have a
high degree of objectivity (verifiability). Or the opposite for either or both of these qualities may be
the case. The important thing to grasp, however, is that important consequences stem from the
measurement, whether they are “good” or “bad.” For example, an excellent year in terms of
income could cause management to be highly rated by shareholders and other interested parties,
resulting in high management bonuses, or provide increased dividends to shareholders. All of
this could occur even though income is a “construct”: not a “real” factor but a conceptual
artifact.
This example shows why accounting is an important area relative to social reality measurements
and constructs. Hopefully, accounting theory can improve the fairness and usefulness of these
measurements.
Accounting Theory, Conceptual Issues in a Political and Economic Environment 8e Harry Wolk James Dodd John Rozycki (Instructor Manual
All Chapters, 100% Original Verified, A
, https: https://www.stuvia.com/user/nursecare//www.stuvia.com/user/nursecare
Chapter 1: An Introduction to Accounting Theory Instructor’s Manual
Q-2 Why do the value choices (entry value, exit value, and historical cost) fall within the
domain of accounting theory?
These are examples of different concepts involved with measuring income which have different
underlying purposes. These different purposes—which affect social reality—are discussed in the
appendix.
Q-3 Of the three inputs to the accounting policy-making function, which do you think is the
most important?
Of the three inputs (economic conditions, political factors, and accounting theory) to the policy-
making function, economic conditions is clearly the most important input. Economic conditions
can easily influence the accounting theory track as well as the policy-making function. Inflation,
for example, in the USA during the 1970s and 80s triggered a significant amount of theoretical
work. Theory responded to the actual economic environment. Another prominent example of
the influence economic conditions has is the merger and acquisition wave of the 1960s, which
lead to APB Opinion Nos. 16 and 17. Many other standards have also been triggered by
economic conditions.
Q-4 How can political factors be an input into accounting policy-making if the latter is
concerned with governing and making the rules for financial accounting?
Those who are affected by the rules will usually try to influence what those rules will be. The
investment tax credit provides an excellent example. When APB Opinion No. 2 did not allow
flow through, lobbying led to APB Opinion No. 4, which did allow immediate recognition in
income of investment tax credits. The stock option battles of the 1990’s (and continuing today)
is another example of the political process and its effect on rule-making. From a predictive
standpoint, we are concerned with how and why political factors play a role in the standard-
setting process.
https://www.stuvia.com/user/nursecare
