Ch. 1 - Intro to Accounting Theory
The basic assumptions, definitions, principles, and concepts (and how we derive them) that underlie accounting rule-making by a legislative body
What is accounting theory?
The type of research that focuses on how users of accounting information make decisions and what information they need
What is behavioral research?
These two organizations were predecessors to the FASB
What are the Committee on Accounting Procedures (CAP) and the Accounting Principles Board (APB)?
The two frauds that led to the passage of the Sarbanes-Oxley Act
What are Enron and WorldCom?
The formal procedures used to derive the laws and principles that govern scientific disciplines
What is the scientific method?
The simplest type of measurement system
What is the nominal scale?
Judging a theory by observing evidence rather than simply by its internal logic
What is inductive reasoning?
The governmental body that has a mandate to establish accounting standards for enterprises under its jurisdiction
What is the SEC?
The quasi-governmental body that was created by SOX to oversee the audits of public companies in order to protect the interests of investors
What is the PCAOB?
The bankruptcy of this company was the straw that broke the camel's back during the stock market crash of the 1930's
What is Kreuger & Toll?
The valuation method that is frequently referred to as a process of orderly liquidation
What is exit valuation?
Empirical research that attempts to determine why particular accounting alternatives are selected by management
What is positive accounting research?
The first national securities legislations in the United States
What are the Securities Act of 1933 and the Securities and Exchange Act of 1934?
The section in SOX that deals with reporting on the effectiveness of management's internal control over financial reporting
What is section 404?
The research area that hypothesizes that management attempts to maximize its own welfare by minimizing costs of monitoring and contracting
What is agency theory?
Proponents of this type of valuation method contend that it is more verifiable, as compared to other alternatives
What is historical cost?
This branch of research views accounting as having a pivotal role in adjudicating conflicts between the corporation and constituencies such as labor, consumers, and the general public
What is critical accounting theory?
The liability concept that restricts liability to each defendant's share of the damages based upon the judge or jury's assessment of their share of the damages
What is proportionate liability?
Formerly one of the "Big 5", this auditing firm met its demise after the Enron fraud
What is Arthur Andersen?
The standard-setting body that adopted a policy of attacking specific problems and recommending preferred methods of accounting when possible
What is the Committee on Accounting Procedures (CAP)?
This valuation system is purely theoretical, with virtually no operable practicability on a statement-wide basis
What is discounted cash flows?
This area of research focuses on the cost of producing accounting information
What is information economics?
The study group that formed the FASB and called for significant changes in the establishment of financial accounting standards
What is the Trueblood Study Group?
The body that has direct control over hiring, firing, compensating, and overseeing external auditors
What is the audit committee?
The premises of a theory that are constructed so that they can be tested by statistical inference
What are hypotheses?