As watts and zimmerman 1986 p 7 state positive accounting

Question

Assignment Question 1:

Read the following quotation from Miller and Reading (1986, p. 64). If constituency support is necessary before particular accounting approaches become embodied in accounting standards, does this have implications for the ‘neutrality' and ‘representational faithfulness' (qualitative characteristics that exist in various conceptual framework projects around the world) of reports generated in accordance with accounting standards?

"The mere discovery of a problem is not sufficient to assure that the Financial Accounting Standards Board will undertake its solution ... There must be a suitably high likelihood that the Board can resolve the issues in a manner that will be acceptable to the constituency-without some prior sense of the likelihood that the Board members will be able to reach a consensus, it is generally not advisable to undertake a formal project".

Assignment Question 2:

As Watts and Zimmerman (1986, p. 7) state, Positive Accounting Theory ‘is concerned with explaining [accounting] practice. It is designed to explain and predict which firms will and which firms will not use a particular accounting method ... but it says nothing as to which method a firm should use'. Do you think that this represents an ‘abrogation' of the academics' duty to serve the community that supports them?

Answer 1

To complete this assignment, read the questions as well as guidelines carefully. Review the quotation from Miller and Reading (1986, p. 64). If constituency support is essential before specific accounting approaches become embodied in accounting standards, does this encompass implications for the ‘neutrality' and ‘representational faithfulness' (that is, qualitative features that exist in different conceptual framework projects around the world) of reports produced in accordance by the accounting standards? The simple discovery of a problem is not adequate to guarantee that the Financial Accounting Standards Board will accept its solution ... There should be an appropriately high likelihood that the Board can resolve the issues in a way that will be acceptable to the constituency devoid of some prior sense of the likelihood that the Board members will be capable to reach a consensus, it is usually not advisable to undertake a formal project.