Practice development Book-keeping fulfill accountability of stewardship mgmt.

t. of resoures to maintain integrity & discover missappropriati on record the growth of crops & herds in QUANTITY Eg: Babylon people use token to record the crops & herds growth

Pre-theory period Bsns transaction become more complex, simple & single entry was found *inadequate for internal control of bsns xtvt *inadequate to produce reliable info. Introduce double entry actg. system: Operation record in memorandum Expressed in DT/CT in a journal Post to ledger Pupose 2X entry: Have more systematic record Reduce errors Make fraud more difficult Calculation of profit not a priority because the enterprise on that time were shortterm venture No theories of actg was devised from the time

Stagnation period Pratice of 2X entry spread with few improvement in actg techniques Eg: Actg record include simple LIST of INVENTORIE S & RECEIVE and PAYMENT account Main function of P&L was closing book account for 3 occassions: Merchant death Partnership dissolution Book were full, new books are required to be opened P&L have flaws because: Dont have proper allowanve for doubtful debt & deprecition No dinstinction btw. revenue and capital items & private and bsns expenditure

Formalization of practise Beginning of bsns growth in US & UK *demand for the detailed & qlty actg info. Eg: Cost actg & depr of FA, diiferent inventory account for different types of goods, prepayment & accrual concept were introduced Development led to actg practise in textbook & teaching methods Creative actg was adopted to give illusion of profit Development of actg theories : *pragmatic *normative *positive

General scientific period Focus on EXISTING PRACTICAL OF ACTG Pragmatic actg theories were developed: To explain actg practise & develop framework Eg: Do research to determine the basis of recording FA transsaction used by accoutant SEC was formed in USA to improve finacial regulations & reporting Development of several notable actg publication Eg: AAA released A tentative statement of actg principle affecting corporate report

Normative period Normative theories were introduced Eg: theoriest establish NORMS for best actg practice Concern on what should happen in actg practise & debate about the measurement Eg: Issue appropriate basis for ASSETS valuation *Issue: HISTORICAL COST doesnt produce true profit, thus, produce not true assets value *Suggestion: Use CURRENT VALUEMEASUREMET N in actg in order to take to account the impact of inflation & specific increase in FA price But, no clear choice of changing practise, thus stick use historical method Weakness: Normative theories doesnt involve empirical testing Based on value judgement Underlying assumptions are untested Difficult in obtaining general acceptance Demission of normative theory: Availability of empirical data & new testing methods Application of financial eco. principles

Positive period Develop theories based on research & involve hypothesis Helps to predict the reaction of investors to the management action 1st stage : Focus on determining the assumption by normative theorist Eg: Determine the usefullness of different inflation actg method on user decision making 2nd stage: Focus on actg practise Eg: Bonus plan scheme hypotehsis Research will explain actg policies used by the manager under BPS & manager that is no under BPS. Manager under BPS tend to use policies that can max.profit in the period theyll receive the bonus Research are important to explain how wealth affects the actg decisions on SHs,lender,manager. Deficiencies Wealth max has become the answer to explain actg practise Relies excessively on the assumption that market is efficient

Recent development Development in actg theories have tended to take diff. approach Academic focus more on: - Capital market - Agency theory - Behavioral aspect Conceptual framework are resurrected to: - States the nature & purpose of financial reporting - Establish criteria in deciding btw alternative actg practises - Propose statement of actg concept eg: outline objective, qualitative characteristic,mea surement of A & L Start joint project btw IASB & FASB

INSTITUTIONAL DEVELOPMENT OF ACCOUNTING PRINCIPLES IN USA Management Contribution Phase Significant management influence the foumulation of actg principle Adoption of adhoc solution to urgent issue Foucus on pragmatic solution, tax minimazation & variety actg technique Issues that have been addressed include: Unsatisfactory actg standard Protection of investors interest Consequences of dependence of management initiative are: Most actg technique lack of theoritical support Management focus on tax min. & income max. Techniques adopted were motivated to desire smooth earnings Diff. co. use diff. techniques for same issues Institutional Contribution Phase Establish Security Act Set out actg principles & methods for FS preparation, A & L valuation, & also depreciation determination AAA released A tentative statement of actg policies affecting corporate xtvt Established CAP which issued actg practice procedure Professional Phase CAP dissolved because failed to : - Hear actg practitioner - Work on unpopular issues - Develop a comprehensive statement on basic actg principles Actg Principle Board (APB) has been developed to take the lead of GAAP Responsible to: - Advance the written actg principle of GAAP - Narrow the areas of diff actg policies - Discussed ulsolve & controversial issues BUT, APB lack of authority support, so, replaced by FASB. Political Phase Established FASB<quasi-political approach> to formulate actg principles Develop frameworks & standards that involve various interested party Parties are given chances to give their views on the proposed standard <democratic process>