Test Bank for Financial Accounting Theory and Analysis,
14th Edition by Richard G. Schroeder
,
,6.The purpose of Statements of Financial Accounting Concepts is to
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a. Form a conceptual framework for solving existing and emerging problems.
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b. Determine the need for FASB involvement in an emerging issue. ju ju ju ju ju ju ju ju ju
c. Establish GAAP. ju
d. Modify or extend an existing FASB Accounting Standards Update.
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Answer a ju
Essay
7.Discuss the contributions of Paton and Canning to the development of accounting theory.
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The first attempts to develop accounting theory in the United States have been attributed to
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William
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A. Paton and John B. Canning. Paton’s work, based on his doctoral dissertation, was
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among the first to express the view that all changes in the value of assets and liabilities
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should be reflected inthe financial statements, and that such changes should be measured
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on a current value basis.
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He also maintained that all returns to investors (both dividends and interest) were
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distributions ofincome, and consequently he espoused the entity concept rather than the
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prevailing proprietary concept. An additional contribution of this work was an outline of
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what Paton believed to be the basic assumptions or postulates underlying the accounting
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process. Paton’s basic assumptions and postulates can be viewed as the first step in the
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development of the conceptual framework of accounting. Canning’s work suggested a
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framework for asset valuations and measurement based on future expectations as well as a
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model to match revenues and expenses. At this time, the balance sheet was viewed as the
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principal financial statement, and the concept of capital maintenance wasjust emerging.
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8.Discuss the contribution DR Scott to the development of accounting theory.
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During this early period, significant contributions to the development of a conceptual
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framework of accounting were also made by DR Scott. Scott was viewed as an outsider;
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however, his writingshave proven to be quite insightful. Scott was originally trained as an
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economist and was heavily influenced by the views of his colleague, the economist and
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philosopher Thorstein Veblen. He adopted Veblen’s view that many academics were
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overly occupied with refining the details of existing theories when there was a need for
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the reexamination of fundamental assumptions. Both Scott and Veblen viewed the
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Industrial Revolution as changing the fundamental fabric of our society. Scott believed the
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Industrial Revolution caused managers to look for new methods of maintaining
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organizational control. As a result, scientific methods such as accounting and
ju ju ju ju ju ju ju ju ju ju ju
statisticsbecame organizational control tools.
ju ju ju ju ju
, Scott contributed to the development of accounting theory by recognizing the need for a
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normativetheory of accounting. This view, described in several publications from 1931 to
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1941, evolved intoa description of his conceptual framework in “The Basis for Accounting
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Principles.
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In his first important work, The Cultural Significance of Accounts, Scott argued that
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accounting theory was not a progression toward a static ideal but rather a process of
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continually adapting to an evolving environment. The notion of adaptation later became
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one of Scott’s principles in his conceptual framework. He approached accounting from a
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sociological perspective. The basic premise presented in Cultural Significance was that the
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economic basis of any culture is shaped bythe institutional superstructure of the society in
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question. This view later evolved into his orientation postulate.
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Scott’s next important work was a response to the American Accounting Association’s
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“A Tentative Statement of Principles Underlying Corporate Financial Statements”
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(discussed later in the chapter). Scott criticized the AAA monograph as having a too
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narrow view of accounting in that it addressed only accounting’s transaction function.
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Rather, he saw accounting as encompassing other important functions, such as
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managerial control and the protection of the interests of equity holders. He also viewed
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accounting as having both an internal control function and an external function to act for the
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protection of various economic interests such as stockholders, bond holders, and the
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government.
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Although Scott’s first two works contain what were to become elements of his
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conceptualframework, the first step in its articulation is contained in “Responsibilities of
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Accountants in a Changing Environment.” In this work he again alluded to the influence of the
ju ju ju ju ju ju ju ju ju ju ju ju ju ju ju ju
Industrial Revolution on a changing economy and saw it as requiring improved financial
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reporting to meet the needs of all investors. Scott supported Paton’s earlier acceptance of
ju ju ju ju ju ju ju ju ju ju ju ju ju ju
the entity theory and went on to emphasize that accounting must meet the needs of
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external users. This view is an example of whyScott was considered an outsider, because
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the prevailing view was that accounting should be designed to benefit the firm’s
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management or proprietor (the proprietary theory).
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9.Discuss DR Scott’s hierarchy of postulates and principles.
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In 1941 Scott unveiled his conceptual framework in “The Basis for Accounting Principles.”
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He maintained that it could serve as a vehicle for the development of internally
ju ju ju ju ju ju ju ju ju ju ju ju ju ju
consistent accounting principles. Scott’s framework includes the following hierarchy of
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postulates and principles to be used in the development of accounting rules and
ju ju ju ju ju ju ju ju ju ju ju ju ju
techniques.
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a. Orientation Postulate. —Accounting is based on a broad consideration of the current ju ju ju ju ju ju ju ju ju ju ju
social, political, and economic environment.
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b. The Pervasive Principle of Justice. —The second level in Scott’s conceptual framework
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was justice, which was seen as developing accounting rules that offer equitable
ju ju ju ju ju ju ju ju ju ju ju ju
treatment to all users of financial statements.
ju ju ju ju ju ju ju
14th Edition by Richard G. Schroeder
,
,6.The purpose of Statements of Financial Accounting Concepts is to
ju ju ju ju ju ju ju ju ju
a. Form a conceptual framework for solving existing and emerging problems.
ju ju ju ju ju ju ju ju ju
b. Determine the need for FASB involvement in an emerging issue. ju ju ju ju ju ju ju ju ju
c. Establish GAAP. ju
d. Modify or extend an existing FASB Accounting Standards Update.
ju ju ju ju ju ju ju ju
Answer a ju
Essay
7.Discuss the contributions of Paton and Canning to the development of accounting theory.
ju ju ju ju ju ju ju ju ju ju ju ju
The first attempts to develop accounting theory in the United States have been attributed to
ju ju ju ju ju ju ju ju ju ju ju ju ju ju
William
ju
A. Paton and John B. Canning. Paton’s work, based on his doctoral dissertation, was
ju ju ju ju ju ju ju ju ju ju ju ju ju
among the first to express the view that all changes in the value of assets and liabilities
ju ju ju ju ju ju ju ju ju ju ju ju ju ju ju ju ju
should be reflected inthe financial statements, and that such changes should be measured
ju ju ju ju ju ju ju ju ju ju ju ju ju ju
on a current value basis.
ju ju ju ju ju
He also maintained that all returns to investors (both dividends and interest) were
ju ju ju ju ju ju ju ju ju ju ju ju
distributions ofincome, and consequently he espoused the entity concept rather than the
ju ju ju ju ju ju ju ju ju ju ju ju ju
prevailing proprietary concept. An additional contribution of this work was an outline of
ju ju ju ju ju ju ju ju ju ju ju ju ju
what Paton believed to be the basic assumptions or postulates underlying the accounting
ju ju ju ju ju ju ju ju ju ju ju ju ju
process. Paton’s basic assumptions and postulates can be viewed as the first step in the
ju ju ju ju ju ju ju ju ju ju ju ju ju ju ju
development of the conceptual framework of accounting. Canning’s work suggested a
ju ju ju ju ju ju ju ju ju ju ju
framework for asset valuations and measurement based on future expectations as well as a
ju ju ju ju ju ju ju ju ju ju ju ju ju ju
model to match revenues and expenses. At this time, the balance sheet was viewed as the
ju ju ju ju ju ju j u ju ju ju ju ju ju ju ju ju
principal financial statement, and the concept of capital maintenance wasjust emerging.
ju ju ju ju ju ju ju ju ju ju ju ju
8.Discuss the contribution DR Scott to the development of accounting theory.
ju ju ju ju ju ju ju ju ju ju
During this early period, significant contributions to the development of a conceptual
ju ju ju ju ju ju ju ju ju ju ju
framework of accounting were also made by DR Scott. Scott was viewed as an outsider;
ju ju ju ju ju ju ju ju ju j u ju ju ju ju ju
however, his writingshave proven to be quite insightful. Scott was originally trained as an
ju ju ju ju ju ju ju ju ju ju ju ju ju ju ju
economist and was heavily influenced by the views of his colleague, the economist and
ju ju ju ju ju ju ju ju ju ju ju ju ju ju
philosopher Thorstein Veblen. He adopted Veblen’s view that many academics were
ju ju ju ju ju ju ju ju ju ju ju
overly occupied with refining the details of existing theories when there was a need for
ju ju ju ju ju ju ju ju ju ju ju ju ju ju ju
the reexamination of fundamental assumptions. Both Scott and Veblen viewed the
ju ju ju ju ju ju ju ju ju ju ju
Industrial Revolution as changing the fundamental fabric of our society. Scott believed the
ju ju ju ju ju ju ju ju ju ju ju ju ju
Industrial Revolution caused managers to look for new methods of maintaining
ju ju ju ju ju ju ju ju ju ju ju
organizational control. As a result, scientific methods such as accounting and
ju ju ju ju ju ju ju ju ju ju ju
statisticsbecame organizational control tools.
ju ju ju ju ju
, Scott contributed to the development of accounting theory by recognizing the need for a
ju ju ju ju ju ju ju ju ju ju ju ju ju
normativetheory of accounting. This view, described in several publications from 1931 to
ju ju ju ju ju ju ju ju ju ju ju ju ju
1941, evolved intoa description of his conceptual framework in “The Basis for Accounting
ju ju ju ju ju ju ju ju ju ju ju ju ju ju
Principles.
ju
In his first important work, The Cultural Significance of Accounts, Scott argued that
ju ju ju ju ju ju ju ju ju ju ju ju
accounting theory was not a progression toward a static ideal but rather a process of
ju ju ju ju ju ju ju ju ju ju ju ju ju ju ju
continually adapting to an evolving environment. The notion of adaptation later became
ju ju ju ju ju ju ju ju ju ju ju ju
one of Scott’s principles in his conceptual framework. He approached accounting from a
ju ju ju ju ju ju ju ju ju ju ju ju ju
sociological perspective. The basic premise presented in Cultural Significance was that the
ju ju ju ju ju ju ju ju ju ju ju ju
economic basis of any culture is shaped bythe institutional superstructure of the society in
ju ju ju ju ju ju ju ju ju ju ju ju ju ju ju
question. This view later evolved into his orientation postulate.
ju ju ju ju ju ju ju ju ju
Scott’s next important work was a response to the American Accounting Association’s
ju ju ju ju ju ju ju ju ju ju ju
“A Tentative Statement of Principles Underlying Corporate Financial Statements”
ju ju ju ju ju ju ju ju ju
(discussed later in the chapter). Scott criticized the AAA monograph as having a too
ju ju ju ju ju ju ju ju ju ju ju ju ju ju
narrow view of accounting in that it addressed only accounting’s transaction function.
ju ju ju ju ju ju ju ju ju ju ju ju
Rather, he saw accounting as encompassing other important functions, such as
ju ju ju ju ju ju ju ju ju ju ju
managerial control and the protection of the interests of equity holders. He also viewed
ju ju ju ju ju ju ju ju ju ju ju ju ju ju
accounting as having both an internal control function and an external function to act for the
ju ju ju ju ju ju ju ju ju ju ju ju ju ju ju ju
protection of various economic interests such as stockholders, bond holders, and the
ju ju ju ju ju ju ju ju ju ju ju ju
government.
ju
Although Scott’s first two works contain what were to become elements of his
ju ju ju ju ju ju ju ju ju ju ju ju
conceptualframework, the first step in its articulation is contained in “Responsibilities of
ju ju ju ju ju ju ju ju ju ju ju ju ju
Accountants in a Changing Environment.” In this work he again alluded to the influence of the
ju ju ju ju ju ju ju ju ju ju ju ju ju ju ju ju
Industrial Revolution on a changing economy and saw it as requiring improved financial
ju ju ju ju ju ju ju ju ju ju ju ju ju
reporting to meet the needs of all investors. Scott supported Paton’s earlier acceptance of
ju ju ju ju ju ju ju ju ju ju ju ju ju ju
the entity theory and went on to emphasize that accounting must meet the needs of
ju ju ju ju ju ju ju ju ju ju ju ju ju ju ju
external users. This view is an example of whyScott was considered an outsider, because
ju ju ju ju ju ju ju ju ju ju ju ju ju ju ju
the prevailing view was that accounting should be designed to benefit the firm’s
ju ju ju ju ju ju ju ju ju ju ju ju ju
management or proprietor (the proprietary theory).
ju ju ju ju ju ju
9.Discuss DR Scott’s hierarchy of postulates and principles.
ju ju ju ju ju ju ju
In 1941 Scott unveiled his conceptual framework in “The Basis for Accounting Principles.”
ju ju ju ju ju ju ju ju ju ju ju ju
He maintained that it could serve as a vehicle for the development of internally
ju ju ju ju ju ju ju ju ju ju ju ju ju ju
consistent accounting principles. Scott’s framework includes the following hierarchy of
ju ju ju ju ju ju ju ju ju ju
postulates and principles to be used in the development of accounting rules and
ju ju ju ju ju ju ju ju ju ju ju ju ju
techniques.
ju
a. Orientation Postulate. —Accounting is based on a broad consideration of the current ju ju ju ju ju ju ju ju ju ju ju
social, political, and economic environment.
ju ju ju ju ju
b. The Pervasive Principle of Justice. —The second level in Scott’s conceptual framework
ju ju ju ju ju ju ju ju ju ju ju
was justice, which was seen as developing accounting rules that offer equitable
ju ju ju ju ju ju ju ju ju ju ju ju
treatment to all users of financial statements.
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